EXHIBIT 10.1


 


 


FOURTH AMENDED AND RESTATED


 


MASTER LOAN AGREEMENT


 


by and among


 


HERON LAKE BIOENERGY, LLC


 


and


 


AGSTAR FINANCIAL SERVICES, PCA


 


dated


as of


October 1, 2007


 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I.

  	
  DEFINITIONS AND ACCOUNTING MATTERS2

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Certain Defined
  Terms

  	
  2

  
	
  Section 1.02

  	
  Accounting
  Matters

  	
  12

  
	
  Section 1.03

  	
  Construction

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE II.

  	
  AMOUNTS AND TERMS OF THE TERM LOANS

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Supplements

  	
  13

  
	
  Section 2.02

  	
  Construction
  Loan

  	
  13

  
	
  Section 2.03

  	
  Term Revolving
  Loan

  	
  13

  
	
  Section 2.04

  	
  Revolving Line
  of Credit Loan

  	
  13

  
	
  Section 2.05

  	
  Conversion of Construction
  Loan Into Term Loan

  	
  14

  
	
  Section 2.06

  	
  Adjustments to
  Interest Rate

  	
  15

  
	
  Section 2.07

  	
  Underwriting/Participation/Facility
  Fees

  	
  16

  
	
  Section 2.08

  	
  Default Interest

  	
  16

  
	
  Section 2.09

  	
  Late Charge

  	
  16

  
	
  Section 2.10

  	
  Prepayment of
  Term Loan

  	
  16

  
	
  Section 2.11

  	
  Changes in Law
  Rendering Certain LIBOR Rate Loans Unlawful

  	
  17

  
	
  Section 2.12

  	
  Payments and
  Computations

  	
  17

  
	
  Section 2.13

  	
  Maximum Amount
  Limitation

  	
  18

  
	
  Section 2.14

  	
  Lender Records 

  	
  18

  
	
  Section 2.15

  	
  Loan Payments

  	
  19

  
	
  Section 2.16

  	
  Purchase of
  Equity Interests in AgStar Financial Services, PCA

  	
  19

  
	
  Section 2.17

  	
  Compensation

  	
  19

  
	
   

  	
   

  
	
  ARTICLE III

  	
  CONDITIONS PRECEDENT

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Conditions Precedent to Preliminary Advances

  	
  20

  
	
  Section 3.02

  	
  Conditions Precedent to Construction Advances

  	
  24

  
	
   

  	
   

  
	
  ARTICLE IV.

  	
  REPRESENTATIONS AND WARRANTIES

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Representations and Warranties of the Borrower

  	
  24

  
	
   

  	
   

  
	
  ARTICLE V.

  	
  COVENANTS OF THE BORROWER

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Affirmative Covenants

  	
  29

  
	
  Section 5.02

  	
  Negative Covenants

  	
  37

  
	
   

  	
   

  
	
  ARTICLE VI.

  	
  EVENTS OF DEFAULT AND REMEDIES

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Events of Default

  	
  40

  
	
  Section 6.02

  	
  Remedies

  	
  43

  
	
  Section 6.03

  	
  Remedies Cumulative

  	
  44

  
				



 


i

















 


	
  ARTICLE VII.

  	
  MISCELLANEOUS

  	
  45

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Amendments, etc

  	
  45

  
	
  Section 7.02

  	
  Notices, etc.

  	
  45

  
	
  Section 7.03

  	
  No Waiver; Remedies

  	
  46

  
	
  Section 7.04

  	
  Costs, Expenses and Taxes

  	
  46

  
	
  Section 7.05

  	
  Right of Set-off

  	
  46

  
	
  Section 7.06

  	
  Severability of Provisions

  	
  47

  
	
  Section 7.07

  	
  Binding Effect; Successors and Assigns;
  Participations

  	
  47

  
	
  Section 7.08

  	
  Consent to Jurisdiction

  	
  48

  
	
  Section 7.09

  	
  Governing Law

  	
  48

  
	
  Section 7.10

  	
  Execution in Counterparts

  	
  48

  
	
  Section 7.11

  	
  Survival

  	
  48

  
	
  Section 7.12

  	
  Waiver of Jury Trial

  	
  48

  
	
  Section 7.13

  	
  Entire Agreement

  	
  49

  
				



 


LIST OF SCHEDULES AND EXHIBITS


 


	
  Schedule 3.01(d)

  	
  Real Property

  
	
  Schedule 4.01(a)

  	
  Description of Certain Transactions Related to the
  Borrower’s Stock

  
	
  Schedule 4.01(f)

  	
  Description of Certain Threatened Actions, etc.

  
	
  Schedule 4.01(k)

  	
  Location of Inventory and Farm Products; Third
  Parties in Possession; Crops

  
	
  Schedule 4.01(l)

  	
  Office Locations; Fictitious Names; Etc.

  
	
  Schedule 4.01(p)

  	
  Intellectual Property

  
	
  Schedule 4.01(t)

  	
  Environmental Compliance

  
	
  Schedule 5.01(o)

  	
  Management

  
	
  Schedule 5.02(a)

  	
  Description of Certain Liens, Lease Obligations,
  etc.

  
	
  Schedule 5.02(k)

  	
  Transactions with Affiliates

  
	
   

  	
   

  
	
  Exhibit A

  	
  Compliance Certificate

  
	
  Exhibit B

  	
  Project Sources and Uses Statement

  
	
  Exhibit C

  	
  Form of Opinion Letter

  



 


ii

















 


FOURTH
AMENDED AND RESTATED MASTER LOAN AGREEMENT


 


THIS
FOURTH AMENDED AND RESTATED MASTER LOAN AGREEMENT (this “Agreement”), dated as of October 1, 2007,
between AGSTAR FINANCIAL SERVICES, PCA, a
United States corporation  (“Lender”) and HERON LAKE
BIOENERGY, LLC, a Minnesota limited liability company (the “Borrower”).


 


RECITALS


 


A.                                   On or about
September 29, 2005, Borrower and Lender entered into a Master Loan Agreement
and First Supplement that provided for a construction loan in the amount of
$59,883,000.00, for the purposes of acquiring, constructing, equipping and
furnishing of an ethanol production facility to be located near Heron Lake,
Jackson County, Minnesota (the “Project”).


 


B.                                     Simultaneously
with the execution of the Master Loan Agreement and First Supplement, Borrower
and Lender entered into a Second Supplement that provided for a revolving loan
in the amount of $2,000,000.00, to provide for the general corporate and
operating purposes of the Borrower and its subsidiaries.


 


C.                                     On or about May
12, 2006, Borrower and Lender entered into an Amended and Restated Master Loan
Agreement and an Amended and Restated Second Supplement that amended certain
terms and conditions of the credit facilities.


 


D.                                    On or about November
20, 2006, the Borrower and Lender entered into a Second Amended and Restated
Second Supplement that increased the Elevator Revolving Note to provide for
additional construction costs and additional operating costs related to the
construction and operation of the Project.


 


E.                                      On or about
December 27, 2007, the Borrower and Lender entered into a Second Amended and
Restated Master Loan Agreement, an Amended and Restated First Supplement and a
Third Amended and Restated Second Supplement that increased the Construction
Loan to provide for additional construction costs related to the construction
and operation of the Project.


 


F.                                      On or about May
18, 2007, the Borrower and Lender entered into a Third Amended and Restated
Master Loan Agreement and a Fourth Amended and Restated Second Supplement that
increased the Elevator Revolving Loan to provide for additional working capital
related to the operation of the Project.


 


G.                                     The Borrower
has further requested that the Construction Loan be converted into a term loan
and a term revolving loan.


 


H.                                    The Lender is
willing to extend such financing to the Borrower upon the terms and subject to
the conditions set forth in this Agreement.


 


1

















 


AGREEMENT


 


NOW,
THEREFORE, in
consideration of the foregoing, intending to be legally bound hereby, and in
consideration of Lender making one or more loans to the Borrower, Lender and
the Borrower agree as follows:


 


ARTICLE I.


DEFINITIONS AND ACCOUNTING
MATTERS


 


Section 1.01.                             Certain Defined Terms. As used in this Agreement and in the
Supplements, the following terms shall have the following meanings. Terms not
otherwise defined in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code, as amended from time to time. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.


 


“Advances” means
the Loans or Letters of Credit provided the Borrower pursuant to this      Agreement and the Supplements to this Agreement.


 


“Affiliate” means,
as to any Person, any other Person: 
(a) that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
such Person; (b) that directly or indirectly beneficially owns or holds
five percent (5%) or more of any class of voting stock of such Person; or
(c) five percent (5%) or more of the voting stock of which is directly or
indirectly beneficially owned or held by the Person in question. The term
“control” means the possession, directly or indirectly, of the power to direct
or cause direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise; provided, however, in no event shall the Lender or any Bank
be deemed an Affiliate of the Borrower or any of their subsidiaries.


 


“Air Permit” means the air emissions permit
the MPCA decided to issue to the Borrower for the Project in the Findings of
Fact, Conclusions of Law and Order issued by the MPCA on May 10, 2005, in all
material respects with the same terms and conditions proposed by MPCA as of
that date, including the Project’s status as a synthetic minor source, and any
amendments thereto issued by the MPCA, as modified by the compliance agreement
entered into by and between the MPCA and the Borrower dated effective January
23, 2007, and including any applications for amendments thereto submitted or to
be submitted to the MPCA by the Borrower, including the PSD major source permit
application submitted in August 2007.


 


“Agreement” means this Agreement, as this
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Agreement from time to time.


 


“Borrower” means Heron Lake BioEnergy, LLC, a
Minnesota limited liability company.


 


2

















 


“Borrower’s Equity”
means funds of at least 41.% of Project Costs, currently estimated to be
$51,837,000.00, made up of the following amounts:  (i) members’ equity (including interest
earned on member’s equity) of at least $50,747,000.00; and (ii) grants and
loans from government agencies or utilities of not less than $1,090,000.00.


 


“Business Day”
means any day other than a Saturday, Sunday, or other day on which commercial
banks are authorized to close under the Laws of, or are in fact closed in, the
state where the Lender’s Office is located and, if such day relates to any
LIBOR Rate, means any such day on which dealings in dollar deposits are
conducted by and between banks in the applicable offshore dollar interbank
market.


 


“Capital Expenditures”
means, for any period, the sum of all amounts that would, in accordance with
generally accepted accounting principles consistently applied, be included as
additions to property, plant and equipment on a statement of cash flows for the
Borrower during such period, with respect to: 
(a) the acquisition, construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other fixed
assets or leaseholds; or (b) other capital expenditures and other uses recorded
as capital expenditures having substantially the same effect.


 


“Closing Date”
means October 1, 2007.


 


“CERCLA” means the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended.


 


“Collateral” means and includes, without
limitation, all property and assets granted as collateral security for the
Loans or Indebtedness, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and whether
granted in the form of a security interest, mortgage, assignment of rents, deed
of trust, assignment, pledge, chattel mortgage, chattel trust, factor’s lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or title
retention contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law, contract or
otherwise.


 


“Commitment” means the respective amounts
committed to by Lender under the Supplements and the Notes.


 


“Compliance
Certificate” means a certificate of the Treasurer, or any other officer
reasonably acceptable to the Lender, of the Borrower, substantially in the form
attached hereto as Exhibit A, setting forth the calculations of current financial
covenants and stating:  (a) the Financial
Statements are true and correct and, other than the unaudited interim financial
statements, have been prepared in accordance with generally accepted accounting
principles consistently applied; (b) whether they have knowledge of the
occurrence of any Event of Default under this Agreement, and if so, stating in
reasonable detail the facts with respect thereto; and (c) reaffirm and ratify
the representations and warranties, as of the date of the certificate, contained
in this Agreement.


 


3

















 


“Construction Advance”
means any Advance, other than a Preliminary Advance, for the payment of Project
Costs.


 


“Construction
Contracts”  means any and all
contracts, written or oral, between the Borrower and any Contractor and any
subcontractor and between any of the foregoing and any other person or entity
relating in any way to the construction of the Project, including the
performing of labor or the furnishing of standard or specially fabricated
materials in connection therewith.


 


“Construction Loan”
means the loan from the Lender to the Borrower in the amount of $64,583,000.00
and pursuant to the terms and conditions provided for in the First Supplement
to this Agreement.


 


“Construction Note”
means that certain promissory note of even date herewith executed and delivered
to the Lender by the Borrower in the amount of $64,583,000.00 and pursuant to
the terms and conditions provided for in the Amended and Restated First Supplement
to this Agreement.


 


“Contractor” means
and includes any person or entity, including the General Contractor, engaged to
work on or to furnish materials or supplies for the Project.


 


“Current Portion of
Long Term Debt” means that portion of Funded Debt payable within one year
from the date of such determination, determined in accordance with generally
accepted accounting principles, consistently applied.


 


“Debt” means:  (A) indebtedness for borrowed money or
for the deferred purchase price of property or services; (B) obligations
as lessee under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases;
(C) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (A) or (B)
above or (E) through (G) below; (D) liabilities in respect of
unfunded vested benefits under plans covered by Title IV of ERISA;
(E) indebtedness in respect of mandatory redemption or mandatory dividend
rights on equity interests but excluding dividends payable solely in additional
equity interests; (F) all obligations of a Person, contingent or
otherwise, for the payment of money under any noncompete, consulting or similar
agreement entered into with the seller of a company or its assets or any other
similar arrangements providing for the deferred payment of the purchase price
for an acquisition permitted hereby or an acquisition consummated prior to the
date hereof; and (G) all obligations of a Person under any Hedging
Agreement.


 


“Default Rate”
means the lesser of:  (a) the
Maximum Rate; or (b) the rate per annum which shall from day-to-day be
equal to two percent (2%) in excess of the then applicable rate of interest
under any Supplement or Note.


 


4

















 


“Disbursing Agent”  means Lender, its successors and assigns.


 


“Disbursing Agreement”
means the Disbursing Agreement, dated December 27, 2006,  executed by the Title Company, the Borrower,
and the Lender, as the same may be from time to time amended, modified, or
supplemented.


 


“Distribution”
means any dividend, distribution, payment, or transfer of property to any
member of the Borrower.


 


“Elevator Revolving
Note” means that certain promissory note in the amount of $7,500,000.00
executed and delivered to the Lender by the Borrower pursuant to the terms and
conditions provided for in the Second Supplement to this Agreement.


 


“Environmental Laws”
means all laws and regulations relating to environmental, health, safety and
land use matters applicable to any property.


 


“EBITDA” means for
any period, the total of the following each calculated without duplication for
the Borrower for such period: 
(i) net income from operations; plus (ii) any provision for
(or less any benefit from) income taxes included in determining such net
income; plus (iii) Interest Expense deducted in determining such net
income; plus (iv) amortization and depreciation expense deducted in
determining such net income.


 


“ERISA” means the
Employee Retirement Income Security Act of 1974.


 


“Events of Default”
has the meaning specified in Section 6.01.


 


“Excess Cash Flow”
means EBITDA, less the sum of:  (i)
required payments in respect of Funded Debt; (ii) Maintenance Capital
Expenditures and (iii) an amount equal to 40% of Borrower’s current year’s Net
Income.


 


“Extraordinary Items”
means items which are material and significantly different from the Borrower’s
typical business activities, determined in accordance with generally accepted
accounting principles, consistently applied.


 


“Fixed Charge Coverage
Ratio” means the ratio of (EBITDA +/- Extraordinary Items) divided by the
sum of Current Portion of Long Term Debt + Interest Expense + dividends +
Distributions + Tax Distributions + Maintenance Capital Expenditures) measured
on a consolidated basis.


 


“Food Security Act”
means the Food Security Act of 1985, 7 U.S.C. §1631, as amended, and the
regulations promulgated thereunder.


 


“Funded Debt”
means the principal amount of all Debt of the Borrower having a final maturity
of more than one year from the date of origin thereof (or which is renewable or


 


5

















 


extendible at the option
of the obligor for a period or periods more than one year from the date of
origin) excluding, however, the principal amount due under the Revolving Notes
or any other line of credit used by Borrower for working capital purposes, all
determined in accordance with generally accepted accounting principles,
consistently applied for the period in question.


 


“General Contractor”
means Fagen, Inc., a Minnesota corporation, and its successors and assigns.


 


“Governmental
Authority” means and includes any and all courts, boards, agencies,
commissions, offices, or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, or
otherwise) whether now or hereafter in existence.


 


“Guarantor(s)”  means Lakefield Farmers Elevator, LLC, a
Minnesota limited liability company, and Roland Fagen, together with all other
of the guarantors, sureties, and accommodation parties in connection with any
Indebtedness.


 


Guaranties. The terms “Guaranty” and “Guaranties”
shall mean those guaranties given by the Guarantor, pursuant to which the
Guarantor shall guarantee the full and prompt payment and performance of the
Borrower under the Notes and this Agreement.


 


“Impound Agreement”
means that certain agreement dated as of September 16, 2004, by and between the
Borrower and First State Bank Southwest, as amended, supplemented, modified,
extended or restated.


 


“Income Taxes”
means the applicable state, local or federal tax on the net income of the
Borrower.


 


“Inspecting Engineer”
means BBI, Inc., and its successors and permitted assigns.


 


“Intellectual Property”
has the meaning specified in Section 4.01(p).


 


“Interest Expense”
means for any period, the total interest expense of the Borrower calculated on
a consolidated basis.


 


“Interest Period”
means the period commencing on the date of an Advance and ending on the
numerically corresponding day in the first calendar month thereafter, except
that each such Interest Period which commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month. Notwithstanding the
foregoing:  (a) each Interest Period
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day or if such succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day;
(b) any Interest Period which would otherwise extend beyond the


 


6

















 


Maturity Date shall end
on the Maturity Date; and (c) no Interest Period shall have a duration of
less than one (1) month.


 


“Inventory” means
all of the Borrower’s inventory, as such term is defined in the UCC, whether
now owned or hereafter acquired, whether consisting of whole goods, spare parts
or components, supplies or materials, whether acquired, held or furnished for
sale, for lease or under service contracts or for manufacture or processing,
and wherever located.


 


“Lender”
means AgStar Financial Services, PCA, and its successors and assigns.


 


“Letter of Credit”
means any letter of credit issued by Lender pursuant to the terms of this
Agreement and any Supplement.


 


“Letter of Credit
Liabilities” means, at any time, the aggregate maximum amount available to
be drawn under all outstanding Letters of Credit (in each case, determined
without regard to whether any conditions to drawing could then be met) and all
unreimbursed drawings under Letters of Credit.


 


“LIBOR Rate”
(London Interbank Offered Rate) means the
rate (rounded upward to the nearest sixteenth and adjusted for reserves
required on Eurocurrency Liabilities (as hereinafter defined) for banks subject
to FRB Regulation D (as hereinafter defined) or required by any other federal
law or regulation, quoted by the British Bankers Association (the “BBA”) at
11:00 a.m. London time two Banking Days (as hereinafter defined) before the
commencement of the Interest Period for the offering of U.S. Dollar deposits in
the London interbank market for an Interest Period of one month, as published
by Bloomberg or another major information vendor listed on BBA’s official website.
“Banking Day” shall mean a day on which Lender is open for business, dealings
in U.S. dollar deposits are being carried out in the London interbank market,
and banks are open for business in New York City and London, England.
“Eurocurrency Liabilities” has the meaning as set forth in FRB Regulation D.
“FRB Regulation D” means Regulation D as promulgated by the Board of Governors
of the Federal Reserve System, 12 CFR Part 204, as amended from time to time.


 


“Loan and Carrying
Charges” means
all commitment fees to the Lender, brokerage fees, standby fees, interest
charges, service fees, attorneys’ fees, contractors’ fees, developers’ fees,
funding fees, title insurance fees and charges, recording fees, registration
taxes, real estate taxes, special assessments, insurance premiums, utility
charges incurred by the Borrower in the construction of the Project and
issuance of the Notes, all costs incurred in acquisition of the Real Property
and any other costs incurred in the development of the Project.


 


“Loan Documents”
means this Agreement, any and all Supplements to this Agreement, the Notes,
Letters of Credit, the Security Agreement, the Mortgage and all other
agreements, documents, instruments, and certificates of the Borrower delivered
to, or in favor of, the Lender under this Agreement or in connection herewith or
therewith, including, without


 


7

















 


limitation, all
agreements, documents, instruments, certificates and delivered in connection
with the extension of Advances by the Lender.


 


“Loan Obligations”
means all obligations, indebtedness, and liabilities of the Borrower to the
Lender, including the Reimbursement Obligations, arising pursuant to any of the
Loan Documents, whether now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated, unliquidated,
joint, several, or joint and several, including, without limitation, the
obligation of the Borrower to repay the Advances, interest on the Advances, and
all fees, costs, and expenses (including attorneys’ fees and expenses) provided
for in the Loan Documents.


 


“Loan/Loans” means
and includes the Construction Loan, the Revolving Loan and any other financial
accommodations extended to the Borrower by the Lender pursuant to the terms of
this Agreement and any Supplements.


 


“Long Term Debt”
means indebtedness that matures more than one year after the date of
determination thereof.


 


“Long Term Marketing
Agreement” means any contract, agreement or understanding of the Borrower
having a term of one year or more after the date of determination thereof
relating to the sale of any raw materials, inventory, products or by-products
of the Borrower.


 


“Maintenance Capital
Expenditures” means all Capital Expenditures made in the ordinary course of
business to maintain existing business operations of the Borrower in any fiscal
year, determined in accordance with generally accepted accounting principles,
consistently applied.


 


“Material Adverse
Effect” means any set of circumstances or events which:  (i) has or could reasonably be expected to
have any material adverse effect upon the validity or enforceability of any
Loan Documents or any material term or condition contained therein; (ii) is or could
reasonably be expected to be material and adverse to the condition (financial
or otherwise), business assets, operations, or property of the Borrower; or
(iii) materially impairs or could reasonably be expected to materially impair
the ability of the Borrower to perform the obligations under the Loan
Documents.


 


“Material Contract”
means (i) any contract or any other agreement, written or oral, or any of the
Borrower or its Subsidiaries involving monetary liability of or to any such
person in an amount in excess of $500,000.00 per annum; and (ii) any other
contract or agreement, written or oral, of any of the Borrower or any of its
Subsidiaries the failure to comply with which could reasonably be expected to
have a Material Adverse Effect on any of the Borrower or its Subsidiaries;
provided, however, that any contract or agreement which is terminable by a
party other than any of the Borrower or its Subsidiaries without cause upon
notice of 90 days or less shall not be considered a Material Contract.


 


“Maturity Date”
means October 1, 2012.


 


8

















 


“Maximum Rate”
means the maximum nonusurious interest rate, if any, at any time, or from time
to time, that may be contracted for, taken, reserved, charged or received under
applicable state or federal laws.


 


“Mortgage” means
that certain Third Amended and Restated Mortgage of even date                              herewith, pursuant to which a mortgage
interest shall be given by the Borrower to the Lender        in the Real Property to secure payment to the Lender
of the Loan Obligations.


 


“MPCA” means the
Minnesota Pollution Control Agency of the State of Minnesota.


 


“Net Income” means
income after all operating expenses including salaries and bonuses.


 


“Note/Notes” means
and includes the Construction Note, Term Note, Term Revolving Note, and the
Elevator Revolving Note and any promissory notes executed and delivered to the
Lender by the Borrower pursuant to the terms of this Agreement and any
Supplements as the same may be amended, modified, supplemented, extended or
restated from time to time.


 


“Ordinary Trade
Payable Dispute” means trade accounts payable, in an aggregate amount not
in excess of $50,000.00 with respect to the Borrower, with respect to
which:  (a) there exists a bona
fide dispute between Borrower and the vendor; (b) the Borrower is
contesting the same in good faith by appropriate proceedings; and (c) the
Borrower has established appropriate reserves on its financial statements.


 


“Owner Equity Ratio”
means Tangible Net Worth divided by total assets, measured on a consolidated
basis.


 


“Participation Fee”
shall have the meaning specified in Section 2.06.


 


“Permit Litigation”
means (i) the dispute initiated by the Minnesota Center for Environmental
Advocacy, Izaak Walton League of America, and Minnesotans for an
Energy-Efficient Economy challenging the MPCA’s issuance of an air quality
emissions permit to the Borrower for the Project as a synthetic minor source
and any amendments thereto; and (ii) the compliance agreement entered into by
and between the MPCA and the Borrower dated effective January 23, 2007,
including any applications for amendments thereto submitted or to be submitted
to the MPCA by the Borrower, including the PSD major source permit application
submitted in August 2007, and any actions taken by the parties in connection
therewith.


 


“Person” means any
individual, corporation, business trust, association, company, partnership,
joint venture, governmental authority, or other entity.


 


“Personal Guarantor”
means Roland Fagen.


 


“Personal Property”
means all buildings, structures, equipment, fixtures, improvements, building
supplies and materials and personal property now or hereafter attached to,
located


 


9

















 


in, placed in or
necessary to the use of the improvements on the Real Property including, but
without being limited to, all machinery, fixtures, equipment, furnishings, and
appliances, as well as all renewals, replacements, additions, and substitutes
thereof, and all products and proceeds thereof, and including without limitation
all accounts, instruments, chattel paper, other rights to payment, money,
deposit accounts, insurance proceeds and general intangibles of the Borrower,
whether now owned or hereafter acquired.


 


“Plans and
Specifications” means the final plans and specifications for the
construction of the Project, to be prepared by the General Contractor, and
approved by the Lender, and all amendments and modifications thereof approved
by Lender.


 


“Preliminary Advance”
means an Advance for purposes of (i) the acquisition of real property upon
which the Project is to be constructed in an amount not to exceed
$1,440,000.00;  (ii) preliminary
excavation costs in an amount not to exceed $1,800,000.00; (iii) the
acquisition of certain real property and improvements located in Lakefield,
Minnesota in an amount not to exceed $1,950,000.00; and (iv) miscellaneous
operating expenses of the Borrower in an amount not to exceed $500,000.00.


 


“Program” means
the funds held program that Lender may offer, in its sole discretion and on
such terms and conditions as Lender may establish from time to time, to permit
the Borrower to make advance conditional payments on eligible loans.


 


“Program Account”
means that account established by the Lender under the Program.


 


“Project” means
any and all buildings, structures, fixtures, and other improvements made to the
Real Property and other uses identified in the Project Sources and Uses
Statement as part of the acquisition and construction of an ethanol production
facility in Heron Lake, Minnesota, for which the Loans to Borrower are being
made hereunder.


 


“Project Costs”
means the total of all costs of acquiring the Real Property and constructing
the Project as identified in the Project Sources and Uses Statement, together
with all Loan and Carrying Charges.


 


“Project Sources and
Uses Statement” means the statement attached hereto as Exhibit B which
identifies the sources and uses of monies in a total amount of
$123,920,000.00  related to the Project.


 


“Real Property”
means that real property located in the County of Jackson, State of Minnesota,
owned by the Borrower, upon which the Project is to be constructed and which is
described in Schedule 3.01(d).


 


“Reimbursement
Obligation” means the obligation of the Borrowers to reimburse the Lender for
any demand for payment or drawing under a Letter of Credit.


 


10
















 


“Related Documents” means and includes without
limitation all promissory notes, credit agreements, loan agreements,
guaranties, security agreements, mortgages, deeds of trust, assignments and all
other instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.


 


“Revolving Loan” means any revolving loan
provided by the Lender to the Borrower pursuant to the terms and conditions
provided for in this Agreement and in any Revolving Loan Supplement.


 


“Revolving Note” means any promissory note
executed and delivered to the Lender by the Borrower pursuant to the terms and
conditions provided for in this Agreement and any Revolving Loan Supplement.


 


“SARA” means the Superfund Amendment and
Reauthorizations Act of 1986, as amended.


 


“Security Agreement” means and includes,
without limitation, any agreements, promises, covenants, arrangements,
understandings, or other agreements, whether created by law, contract, or
otherwise, which evidence, govern, represent, or create a Security Interest, as
the same has been and may hereafter be amended or otherwise modified.


 


“Security Interest” means and includes without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, assignment of rents, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise.


 


“Subordinated Debt” means the following
Debt:  (i) tax increment financing; (ii)
debt owed the State of Minnesota or its agencies; and (iii) debt owed Federated
Rural Electric Ass’n/USDA; and (iv) other Debt which has been approved by
Lender in writing and subject to a subordination agreement acceptable to Lender
in its sole discretion.


 


“Subsidiary Guarantor” means Lakefield Farmers
Elevator, LLC, a Minnesota limited liability company.


 


“Supplement” has the meaning set forth in
Section 2.01 of this Agreement.


 


“Tangible Net Worth” means the excess of total
assets over total liabilities except Subordinated Debt, total assets and total
liabilities each to be determined in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 5.01(c) for the Borrower,
excluding, however, from the determination of total assets:  (i) goodwill, organizational expenses,
research and development expenses, trademarks, trade names, copyrights,
patents, patent applications, licenses and rights in any thereof, and other
similar intangibles; (ii) treasury stock; (iii) securities which are not
readily marketable; (iv) cash held in a sinking or other analogous


 


11

















 


fund established for the purpose of redemption,
retirement or prepayment of capital stock or Debt; (v) any write-up in the book
value of any asset resulting from a revaluation thereof subsequent to the
Closing Date; (vi) amortized start-up costs; and (vii) any items not included
in clauses (i) through (vi) above which are treated as intangibles in
conformity with generally accepted accounting principles.


 


“Tax Distributions” has the meaning specified
in Section 5.02(b).


 


“Term Loan” means any amortizing loan with a
maturity of greater than one year provided by the Lender to the Borrower
pursuant to the terms and conditions of this Agreement and Third Supplement to
this Agreement.


 


“Term Note” means that certain promissory note
of even date herewith executed and delivered to the Lender by the Borrower in
the amount of $59,583,000.00 and pursuant to the terms and conditions provided
for in the Agreement and the Third Supplement to this Agreement.


 


“Term Revolving Loan Commitment” shall mean the
following:


 


	
  On the Closing
  Date

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  
	
  October 1, 2008

  	
   

  	
  $

  	
  4,500,000.00

  	
   

  
	
  October 1, 2009

  	
   

  	
  $

  	
  4,000,000.00

  	
   

  
	
  October 1, 2010

  	
   

  	
  $

  	
  3,500,000.00

  	
   

  
	
  October 1, 2011

  	
   

  	
  $

  	
  3,000,000.00

  	
   

  



 


 “Term
Revolving Note” means that certain promissory note of even date herewith
executed and delivered to the Lender by the Borrower in the amount of
$5,000,000.00 and pursuant to the terms and conditions provided for in this
Agreement and the Fourth Supplement to this Agreement.


 


“Underwriting Fee” shall have the meaning
specified in Section 2.06.


 


“Working Capital” means current assets of the
Borrower, including the available commitment under the Term Revolving Loan,
less current liabilities of the Borrower.


 


Section 1.02.                             Accounting Matters. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistently applied, except as otherwise stated herein.
To enable the ready and consistent determination of compliance by the Borrower
with its obligations under this Agreement, the Borrower will not change the
manner in which either the last day of its fiscal year or the last days of the
first three fiscal quarters of its fiscal years is calculated.


 


Section 1.03.                             Construction. Wherever herein the singular number is used, the
same shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate. The headings, captions or
arrangements used in any of the Loan Documents are, unless


 


12

















 


specified otherwise, for convenience only and shall not be deemed to
limit, amplify or modify the terms of the Loan Documents, nor affect the
meaning thereof.


 


ARTICLE II


AMOUNTS AND TERMS OF THE LOANS


 


Section 2.01.                             Supplements. In the event the Borrower desires to borrow from
Lender and Lender is willing to lend to the Borrower, or in the event Lender
and Borrower desire to consolidate any existing loans hereunder, the parties
will enter into a supplement to this Agreement (each supplement, as it may be
amended, modified, supplemented, extended or restated from time to time, a “Supplement” and, collectively, the “Supplements”). Each Supplement will set forth
Lender’s commitment to make a Loan to the Borrower, the amount of the Loan(s),
the purpose of the Loan(s), the interest rate or rate options applicable to the
Loan(s), the repayment terms of the Loan(s), and any other terms and conditions
applicable to the Loan(s). Each Supplement will also be accompanied by a Note
of the Borrower setting forth the Borrower’s obligation to make payments of
interest on the unpaid principal balance of the Loan(s), and fees and premiums,
if any, and to repay the principal balance of the Loan(s). Each Loan will be
governed by the terms and conditions contained in this Agreement and in the
Note and the Supplement relating to that Loan.


 


Section 2.02.                             Construction Loan. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties set
forth in this Agreement, the Lender has agreed to lend to Borrower and Borrower
has agreed to borrow from Lender $64,583,000.00. Such amount shall be loaned by
Lender pursuant to the terms and conditions set forth in this Agreement and the
First Supplement to this Agreement.


 


Section 2.03                                Term Revolving Loan. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties set forth in this
Agreement, the Lender has agreed to lend to Borrower and Borrower has agreed to
borrow from Lender, as of the Closing Date and from time to time thereafter, on
a revolving basis an amount not to exceed the Term Revolving Loan Commitment.
Such amount shall be loaned by Lender pursuant to the terms and conditions set
forth in this Agreement and the Fourth Supplement to this Agreement. Pursuant
to the terms and conditions in this Agreement, the Lender may extend additional
Term Revolving Loans shall be provided by Lender pursuant to the terms and
conditions of a further Term Revolving Loan Supplement.


 


Section 2.04.                             Revolving Line of Credit Loan. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties set forth in this
Agreement, the Lender has agreed, as of the Closing Date, to lend to Borrower
and Borrower has agreed to borrow from Lender from time to time on a revolving
basis an amount not to exceed $7,500,000.00. Such amount shall be loaned by
Lender pursuant to the terms and conditions set forth in this Agreement and the
Second Supplement to this Agreement. Pursuant to the terms and conditions in
this Agreement, the Lender may extend additional Revolving Loans to the
Borrower. Any such future Revolving Loans shall be provided by Lender pursuant
to the terms and conditions of a future Revolving Loan Supplement.


 


13

















 


Section 2.05.                             Conversion of
Construction Loan Into Term Loan and Term Revolving Loan. Pursuant to the
terms and conditions contained in this Agreement, the Lender shall extend a
Term Loan and Term Revolving Loan to the Borrower on the Closing Date, provided
all of the terms, conditions, warranties, representations, and covenants of the
Borrower set forth in this Agreement, the Third Supplement and the Fourth
Supplement are satisfied. Any such amount shall be provided by Lender pursuant to the terms and
conditions set forth in this Agreement, the Third Supplement, and the Fourth
Supplement to this Agreement setting forth the terms and conditions of such
term loan, provided, however, that (i) all unpaid
principal and all accrued interest on the Term Loan and the Term Revolving Loan
shall be due and payable on the Maturity Date and (ii) the Borrower shall have
the right to convert all or any part of the Term Loan into a fixed rate loan,
subject to the terms and conditions of this Agreement, which shall bear
interest at a rate equal to the most recent ten-year fixed rate bonds sold by
the Federal Farm Credit Banks Funding Corporation prior to the Construction
Loan Maturity Date, plus 300 basis points. Should the Borrower elect such fixed
rate option, such rate of interest shall not be subject to any adjustments
under Section 2.06 of this Agreement.


 


(a)                                  Conditions Precedent. In addition to the terms and conditions
of disbursement set forth in this Agreement and the Disbursing Agreement, the
Lender shall not be obligated to extend a term loan to the Borrower on the
Closing Date unless and until:


 


(i)                                     Amount of Term Loan. The maximum amount of the Term Loan shall
be $64,583,000.00. On the Borrower’s written request on or before the Closing
Date, the Construction Loan may be segmented into two credit facilities:  (i) a term revolving loan in an amount not to
exceed $5,000,000.00, with no required amortization; and (ii) a term loan in an
amount not to exceed $59,583,000.00, with a ten (10) year amortization. Both
the term revolving loan and the term loan shall be payable in full on the
Maturity Date;


 


(ii)                                  Construction Loan Exceeds Term Loan. In the event that the amount of the
Construction Loan advanced by Lender exceeds the amount of the term loan to be
made by the Lender, the Borrower shall immediately repay the amount of the
Construction Loan which is not being converted into a term loan;


 


(iii)                               Facility Fee. The Borrower shall have paid Lender the
Facility Fee which is due pursuant to Section 2.07;


 


(iv)                              Representations and Warranties. The representations and warranties set
forth in this Agreement, the Second Supplement, the Third Supplement, and the
Fourth Supplement, are true and correct in all material respects as of the
Closing Date, except as disclosed in writing to the Lender, to the same extent
and with the same effect as if made at and as of the date thereof;


 


(v)                                 No Defaults. The Borrower and each of its
subsidiaries are not in default under the terms of this Agreement, the Related
Documents or any other agreement to which the Borrower and each of its
subsidiaries are a party and which relates to the construction or operation of
the Project;


 


14

















 


(vi)                              Government Action. No license, permit, permission or
authority necessary for the construction or operation of the Project has been
revoked or challenged by or before any Governmental Authority except for the
Permit Litigation; and


 


(vii)                           Marketing Agreements. The Borrower has executed marketing agreements for
all ethanol and DDGS to be produced at the Project and provided Lender with
collateral assignments of all such agreements in form and content which is
reasonably satisfactory to Lender and its counsel and acknowledged by the
non-Borrower party to all such agreements.


 


(b)                                 Excess Cash Flow. Such term loan shall require that, beginning with the
first fiscal year end following the Closing Date, and every year thereafter,
and in addition to all other payments of principal and interest required by the
terms of the Third Supplement, an amount equal to 25% of the Borrower’s Excess
Cash Flow for the immediately proceeding fiscal year (the “Excess Cash
Flow Payment”), provided however,
that the total Excess Cash Flow Payments required hereunder shall not exceed
$2,000,000.00 in any calendar year. All Excess Cash Flow Payments shall be
applied to the reduction of the outstanding principal balance of the Term Loan.
No Excess Cash Flow Payments shall be required during any calendar year should
the Tangible Owner’s Equity be greater than 50% at the end of the immediately
proceeding fiscal year of the Borrower.


 


Section 2.06.                             Adjustments to Interest Rate. Notwithstanding any other provision of
this Agreement, the Supplements, the Notes, or the Related Documents, the rate
of interest under any Loan which bears interest on a variable rate, shall be
adjusted according to the following schedule should the Owner’s Equity of the
Borrower, measured on a consolidated basis, achieve the levels set forth below:


 


	
  Owner’s Equity

  	
   

  	
  Interest Rate

  
	
   

  	
   

  	
   

  
	
  Less than 49.99%

  	
   

  	
  Applicable
  LIBOR Rate plus 325 basis points

  
	
   

  	
   

  	
   

  
	
  50.00%—59.99%

  	
   

  	
  Applicable
  LIBOR Rate plus 300 basis points

  
	
   

  	
   

  	
   

  
	
  Greater
  Than 60.00%

  	
   

  	
  Applicable
  LIBOR Rate plus 275 basis points

  



 


Upon delivery of the monthly financial statements and the Compliance
Certificate pursuant to Section 5.01(c)(iii) for each month that
corresponds with each month end, the rate of interest for any month shall
automatically be adjusted in accordance with the Owner’s Equity set forth
therein and the rates set forth above. Such automatic adjustment to the rate of
interest shall take effect as of the first Business Day of the month following
the month in which the Lender received the related Compliance Certificate. The
term “Adjustment Date” shall mean each such
Business Day when such rates, margins or fees change pursuant to the
immediately prior sentence or the next following sentence. If the Borrower
fails to deliver such Compliance Certificate which so sets forth the


 


15

















 


Owner’s Equity within the period of time required by
Section 5.01(c)(iii) hereof or if any Event of Default occurs, the rate of
interest shall automatically be adjusted to a rate equal to the applicable
LIBOR Rate plus 375 basis points, such automatic adjustments:  (a) to take effect as of the first
Business Day after the last day on which the Borrower were required to deliver
the applicable Compliance Certificate in accordance with
Section 5.01(c)(iii) hereof or in the case of an Event of Default, on the
date the written notice is given to the Borrower; and (b) to remain in effect
until subsequently adjusted in accordance herewith upon the delivery of such
Compliance Certificate or, in the case of an Event of Default, when such Event
of Default has been cured to the satisfaction of the Lender.


 


Section 2.07.                             Underwriting/Participation/Facility Fees. The Borrower has paid to the Lender;
the following:  (a) an Underwriting Fee
of $75,000.00; and (b) a Participation Fee of 
$371,298.00. In addition, the Borrower shall pay to Lender on or before
the Closing Date, and on each anniversary of the Closing Date through the
fourth anniversary, an annual Facility Fee of $20,000.00.


 


Section 2.08.                             Default Interest. In addition to the rights and remedies
set forth above and notwithstanding any Note: 
(i) if the Borrower fails to make any payment to Lender when due
(including, without limitation, any purchase of equity of Lender when
required), then at Lender’s option in each instance, such obligation or payment
shall bear interest from the date due to the date paid at 2% per annum in
excess of the rate of interest that would otherwise be applicable to such
obligation or payment; (ii) upon the occurrence and during the continuance of
an Event of Default beyond any applicable cure period, if any, at Lender’s
option in each instance, the unpaid balances of the Loans shall bear interest
form the date of the Event of Default or such later date as Lender shall elect
at 2% per annum in excess of the rate(s) of interest that would otherwise be in
effect on the Loans under the terms of the applicable Note; (iii) after the
maturity of any Loan, whether by reason of acceleration or otherwise, the
unpaid principal balance of the Loan (including without limitation, principal,
interest, fees and expenses) shall automatically bear interest at 2% per annum
in excess of the rate of interest that would otherwise be in effect on the Loan
under the terms of the applicable Note. Interest payable at the Default Rate
shall be payable from time to time on demand or, if not sooner demanded, on the
last day of each calendar month.


 


Section 2.09.                             Late Charge. If any payment of principal or interest due under this
Supplement or the Construction Note is not paid within ten (10) days of the due
date thereof, the Borrower shall, in addition to such amount, pay a late charge
equal to five percent (5%) of the amount of such payment.


 


Section 2.10.                             Prepayment of Term Loan. The Borrower may, by notice to the Lender, prepay the
outstanding amount of the Term Loan in whole or in part with accrued interest
to the date of such prepayment on the amount prepaid, without penalty or
premium, except as provided in this Section. In the event any Loan is converted
to a fixed rate loan, the Borrower shall pay the prepayment fee applicable to
that fixed interest rate, if any. Prepayments made by the Borrower under
Section 2.05(b) of this Agreement are not subject to any prepayment penalty.


 


16

















 


Section 2.11.                             Changes in Law Rendering Certain LIBOR Rate Loans
Unlawful. In
the event that any change in any applicable law (including the adoption of any
new applicable law) or any change in the interpretation of any applicable law
by any judicial, governmental or other regulatory body charged with the
interpretation, implementation or administration thereof, should make it (or in
the good-faith judgment of the Lender should raise a substantial question as to
whether it is) unlawful for the Lender to make, maintain or fund LIBOR Rate
Loans, then:  (a) the Lender shall
promptly notify each of the other parties hereto; and (b) the obligation
of the Lender to make LIBOR rate loans of such type shall, upon the
effectiveness of such event, be suspended for the duration of such
unlawfulness. During the period of any suspension, Lender shall make loans to
Borrower that are deemed lawful and that as closely as possible reflect the
terms of this Agreement.


 


Section 2.12.                             Payments and Computations.


 


(a)                                  Method of Payment. Except as otherwise expressly provided
herein, all payments of principal, interest, and other amounts to be made by
the Borrower under the Loan Documents shall be made to the Lender in U.S.
dollars and in immediately available funds, without set-off, deduction, or
counterclaim, not later than 2:00 P.M. (Minneapolis, Minnesota time) on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next
succeeding Business Day). The Borrower shall, at the time of making each such
payment, specify to the Lender the sums payable under the Loan Documents to
which such payment is to be applied and in the event that the Borrower fail to
so specify or if an Event of Default exists, the Lender may apply such payment
and any proceeds of any Collateral to the Loan Obligations in such order and
manner as it may elect in its sole discretion.


 


(b)                                 Application of Funds. Lender may apply all payments received by it to the
Loan Obligations in such order and manner as Lender may elect in its sole
discretion; provided that any payments received from any guarantor or from any
disposition of any collateral provided by such guarantor shall only be applied
against obligations guaranteed by such guarantor.


 


(c)                                  Payments on a Non-Business
Day. Whenever
any payment under any Loan Document shall be stated to be due on a day that is
not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the payment of interest and fees, as the case may be.


 


(d)                                 Proceeds of Collateral. All proceeds received by the Lender
from the sale or other liquidation of the Collateral when an Event of Default
exists shall first be applied as payment of the accrued and unpaid fees and
expenses of the Lender hereunder, including, without limitation, under Section
7.04 and then to all other unpaid or unreimbursed Loan Obligations (including
reasonable attorneys’ fees and expenses) owing to the Lender and then any
remaining amount of such proceeds shall be applied to the unpaid amounts of
Loan Obligations, until all the Loan Obligations have been paid and satisfied
in full or cash collateralized. After all the Loan Obligations (including
without limitation, all contingent Loan Obligations) have been paid and
satisfied in full, all Commitments terminated and all other obligations of the
Lender to the Borrower otherwise satisfied, any proceeds of Collateral shall be
delivered to the Person entitled thereto as directed by the Borrower or as
otherwise determined by applicable law or applicable court order.


 


17

















 


(e)                                  Computations. Except as expressly provided otherwise
herein, all computations of interest and fees shall be made on the basis of
actual number of days lapsed over a year of 365 or 366 days, as appropriate.
Interest shall accrue from and include the date of borrowing, but exclude the
date of payment.


 


Section 2.13.                             Maximum Amount Limitation. Anything in this Agreement, any
Supplement, any Note, or the other Loan Documents to the contrary
notwithstanding, Borrower shall not be required to pay unearned interest on any
Note or any of the Loan Obligations, or ever be required to pay interest on any
Note or any of the Loan Obligations at a rate in excess of the Maximum Rate, if
any. If the effective rate of interest which would otherwise be payable under
this Agreement, any Note or any of the other Loan Documents would exceed the
Maximum Rate, if any, then the rate of interest which would otherwise be
contracted for, charged, or received under this Agreement, any Note or any of
the other Loan Documents shall be reduced to the Maximum Rate, if any. If any
unearned interest or discount or property that is deemed to constitute interest
(including, without limitation, to the extent that any of the fees payable by Borrower
for the Loan Obligations to the Lender under this Agreement, any Supplement,
any Note, or any of the other Loan Documents are deemed to constitute interest)
is contracted for, charged, or received in excess of the Maximum Rate, if any,
then such interest in excess of the Maximum Rate shall be deemed a mistake and
canceled, shall not be collected or collectible, and if paid nonetheless,
shall, at the option of the holder of such Note, be either refunded to the
Borrower, or credited on the principal of such Note. It is further agreed that,
without limitation of the foregoing and to the extent permitted by applicable
law, all calculations of the rate of interest or discount contracted for,
charged or received by the Lender under its Note, or under any of the Loan
Documents, that are made for the purpose of determining whether such rate
exceeds the Maximum Rate applicable to the Lender, if any, shall be made, to
the extent permitted by applicable laws (now or hereafter enacted), by
amortizing, prorating and spreading during the period of the full terms of the
Advances evidenced by the Notes, and any renewals thereof all interest at any
time contracted for, charged or received by Lender in connection therewith.
This Section 2.11 shall control every other provision of all agreements
among the parties to this Agreement pertaining to the transactions contemplated
by or contained in the Loan Documents, and the terms of this Section 2.11
shall be deemed to be incorporated in every Loan Document and communication related
thereto.


 


Section 2.14.                             Lender Records. All advances and all payments or prepayments made
thereunder on account of principal or interest may be evidenced by the Lender
in accordance with its usual practice in an account or accounts evidencing such
advances and all payments or prepayments thereunder from time to time and the
amounts of principal and interest payable and paid from time to time
thereunder; in any legal action or proceeding in respect of the Notes, the
entries made in such account or accounts shall be prima  facie
evidence of the existence and amounts of all advances and all payments or
prepayments made thereunder on account of principal or interest. Lender shall
provide monthly statements of such entries to Borrower for the purpose of confirming
the accuracy of such entries.


 


18

















 


Section 2.15.                             Loan Payments. During the continuance of an Event of Default, the
Lender may deduct any obligations due or any other amounts due and payable by
the Borrower under the Loan Documents from any accounts maintained with the
Lender.


 


Section 2.16.                             Purchase of Equity Interests in AgStar Financial
Services, PCA.
In addition to (and not in lieu of) the other amounts payable by Borrower under
this Agreement or any Supplement, Borrower shall purchase $1,000.00 of equity
interests in AgStar Financial Services, PCA. The purchase price for the equity
interests shall be payable in full on or prior to the date hereof. Such
purchases of equity interests shall comply with AgStar Financial Services,
PCA’s respective by-laws and capital plans applicable to borrowers generally.
Borrower hereby acknowledges receipt of the following information and materials
pertaining to AgStar Financial Services, PCA prior to the execution of this
Agreement: (i) copies of the by-laws of AgStar Financial Services, PCA; (ii) a
written description of the terms and conditions under which the equity
interests are issued; (iii) a copy of the most recent annual reports of AgStar
Financial Services, PCA; and (iv) if more recent than the latest annual
reports, the latest quarterly reports of AgStar Financial Services, PCA. AgStar
Financial Services, PCA shall possess a statutory security interest in its
equity interests. AgStar Financial Services, PCA reserves the right to sell
participations on a non-patronage basis.


 


Borrower acknowledges and agrees that:  (a) only the portions of the Loans provided
to Borrower by AgStar Financial Services, PCA are entitled to patronage
distributions in accordance with the bylaws of AgStar Financial Services, PCA
and its practices and procedures; and (b) any patronage or similar payments to
which Borrower is entitled as a result of its ownership of the equity interests
in AgStar Financial Services, PCA will not be based on any of the Loans not
belonging to AgStar Financial Services, PCA or in which AgStar Financial
Services, PCA has granted a participation interest at any time.


 


Section 2.17.                             Compensation. Upon the request of the Lender, the Borrower shall pay
to the Lender such amount or amounts as shall be sufficient (in the reasonable
opinion of the Lender) to compensate it for any loss, cost, or expense
(excluding loss of anticipated profits incurred by it) as a result of: (i) any
payment, prepayment, or conversion of a LIBOR rate loan for any reason on a
date other than the last day of the Interest Period for such Loan; or (ii) any
failure by the Borrower for any reason (including, without limitation, the
failure of any condition precedent specified in Section 3.01 to be satisfied)
to borrow, extend, or prepay a LIBOR rate loan on the date for such borrowing,
extension, or prepayment specified in the relevant notice of borrowing,
extension or prepayment under this Agreement.


 


Such indemnification may include any amount equal to
the excess, if any, of:  (a) the amount
of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or extended, for the period from the date of such
prepayment or of such failure to borrower, convert or extend to the last day of
the applicable Interest Period (or in the case of a failure to borrow, convert
or extend, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such loan as
provided for herein; over (b) the amount of interest (as reasonably determined
by the Lender) which would have accrued to the Lender on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank LIBOR


 


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market. The covenants of the Borrower set forth in this Section 2.16
shall survive the repayment of the Loans and other obligations under the Loan
Documents hereunder.


 


ARTICLE III.


CONDITIONS PRECEDENT


 


Section 3.01.                             Conditions Precedent to Preliminary Advances. The effectiveness of this Agreement and
obligations of the Lender to make any Advance, including any Preliminary
Advance except for any fees or advances required to be paid by the Borrower
under Section 7.04, are subject to the conditions precedent that the Lender
shall have received the following, in form and substance satisfactory to the
Lender:


 


(a)                                  This Agreement, duly executed by the
Borrower and the Lender;


 


(b)                                 The Supplements, duly executed by the
Borrower and the Lender;


 


(c)                                  The Notes, duly executed by the Borrower;


 


(d)                                 The Third Amended and Restated Mortgage,
fully executed and notarized, to secure the Loans encumbering on a first Lien
basis the fee interest and/or leasehold interest of the Borrower in the Real
Property and the fixtures thereon described in Schedule 3.01(d);


 


(e)                                  A Security Agreement duly executed by the
Borrower and in a form as provided by the Lender by which security agreement
the Lender is granted a security interest by the Borrower in the Collateral;


 


(f)                                    A copy of the Construction Contract(s)
and a complete set of the Plans and Specifications, together with copies of all
permits and government approvals relating to the construction and use of the
Project;


 


(g)                                 An assignment of contract for each of the
Construction Contracts and the Plans and Specifications, duly executed by the
Borrower and pursuant to which the Borrower shall have assigned to the Lender
all of the Borrower’s right, title and interest in and to each such Construction
Contract, and which assignment shall have been consented to and certified in
writing by the other party(ies) to each such Construction Contract;


 


(h)                                 Copies of all Material Contracts between
Borrower and third parties used in the normal operations of Borrower, including
but not limited to management agreements, marketing agreements, and corn
delivery agreements;


 


(i)                                     Assignments of the Material Contracts
between Borrower, duly executed by the Borrower and pursuant to which the
Borrower shall have assigned to the Lender all of the Borrower’s right, title
and interest in and to each such contracts, and which assignment shall have
been consented to and certified in writing by the other party(ies) to each such
contract;


 


20

















 


(j)                                     Financing Statements in form and content
satisfactory to the Lender and in proper form under the Uniform Commercial Code
of all jurisdictions as may be necessary or, in the opinion of the Lender,
desirable to perfect the security interests created by the Security Agreement;


 


(k)                                  Copies of UCC, tax and judgment lien
search reports listing all financing statements and other encumbrances which
name the Borrower (under its present name and any previous name) and which are
filed in the jurisdictions in which the Borrower is located, organized or
maintains collateral, together with copies of such financing statements (none
of which shall cover the collateral purported to be covered by the Security
Agreement);


 


(l)                                     Evidence that all other actions necessary
or, in the opinion of the Lender, desirable to enable the Lender to perfect and
protect the security interests created by the Security Agreement have been
taken;


 


(m)                               An ALTA mortgagee title insurance policy
issued by a title insurance company acceptable to Lender, with respect to the
Real Property, assuring the Lender that the Mortgage creates a valid and
enforceable encumbrance on the Real Property, free and clear of all defects and
encumbrances except Permitted Liens and containing:  (i) a comprehensive endorsement (ALTA form
9); (ii) a zoning endorsement (ALTA form 3.1) specifying an ethanol production
facility as a permitted use for all of the parcels included in the Real
Property; and (iii) such endorsements as the Lender shall reasonably require.
All such title insurance policies shall be in form and substance reasonably
satisfactory to the Lender and shall provide for affirmative insurance and such
reinsurance as the Lender may reasonably request, all of the foregoing in form
and substance reasonably satisfactory to the Lender;


 


(n)                                 Maps or plats of the Real Property
certified to the Lender and the title insurance company issuing the policy
referred to in Subsection 3.01(n) (the “Title Insurance Company”)
in a manner reasonably satisfactory to each of the Lender and the Title
Insurance Company, dated a date reasonably satisfactory to each of the Lender
and the Title Insurance Company by an independent professional licensed land
surveyor, which maps or plats and the surveys on which they are based shall be
sufficient to delete any standard printed survey exception contained in the
applicable title policy and be made in accordance with the Minimum Standard
Detail Requirements for Land Title Surveys jointly established and adopted by
the American Land Title Association and the American Congress on Surveying and
Mapping in 1992, and, without limiting the generality of the foregoing, there
shall be surveyed and shown on such maps, plats or surveys the following:  (i) the locations on such sites of all
the buildings, structures and other improvements and the established building
setback lines; (ii) the lines of streets abutting the sites and width
thereof; (iii) all access and other easements appurtenant to the sites
necessary to use the sites; (iv) all roadways, paths, driveways,
easements, encroachments and overhanging projections and similar encumbrances
affecting the site, whether recorded, apparent from a physical inspection of
the sites or otherwise known to the surveyor; (v) any encroachments on any
adjoining property by the building structures and improvements on the sites;
and (vi) if the site is described as being on a filed map, a legend
relating the survey to said map;


 


21

















 


(o)                                 Evidence as to:  (i) whether any portion of the Real
Property is in an area designated by the Federal Emergency Management Agency as
having special flood or mud slide hazards (a “Flood Hazard
Property”); and (ii) if any portion of the Real Property is a
Flood Hazard Property:  (A) whether
the community in which such Real Property is located is participating in the
National Flood Insurance Program; (B) the Borrower’s written
acknowledgment of receipt of written notification from the Lender (1) as
to the fact that such Real Property is a Flood Hazard Property and (2) as
to whether the community in which each such Flood Hazard Property is located is
participating in the National Flood Insurance Program; and (C) copies of
insurance policies or certificates of insurance of the Borrower evidencing
flood insurance satisfactory to the Lender and naming the Lender as sole loss
payee on behalf of the Lender;


 


(p)                                 Evidence reasonably satisfactory to the Lender that the Real Property and
the contemplated use of the Real Property, are in compliance in all material
respects with all applicable Laws including without limitation health and
Environmental Laws, including, but not limited to all concentrated animal
feedlot operations rules and regulations, erosion control ordinances, storm
drainage control laws, doing business and/or licensing laws, zoning laws (the
evidence submitted as to zoning should include the zoning designation made for
the Real Property, the permitted uses of the Real Property under such zoning
designation and zoning requirements as to parking, lot size, ingress, egress
and building setbacks) and laws regarding access and facilities for disabled
persons including, but not limited to, the Federal Architectural Barriers Act,
the Fair Housing Amendments Act of 1988, the Rehabilitation Act of 1973 and the
Americans with Disabilities Act of 1990;


 


(q)                                 Certificates of the secretary of the
Borrower and the Guarantor together with true and correct copies of the
following:  (i) the Articles of
Organization of the Borrower and Guarantor, including all amendments thereto,
certified by the Office of the Secretary of State of the state of its
incorporation and dated within 30 days prior to the date hereof;
(ii) the Operating Agreements of the Borrower and the Guarantor, including
all amendments thereto; (iii) the resolutions of the Board of Governors of
the Borrower and the Guarantor authorizing the execution, delivery and
performance of this Agreement, the other Loan Documents, and all documentation
executed and delivered in connection therewith to which the Borrower is a
party; (iv) certificates of the appropriate government officials of the
state of organization of the Borrower and the Guarantor as to their existence
and good standing, and certificates of the appropriate government officials in
each state where each corporate Borrower and Guarantor does business and where
failure to qualify as a foreign corporation would have a material adverse
effect on the business and financial condition of the Borrower and Guarantor,
as to their good standing and due qualification to do business in such state,
each dated within 30 days prior to the date hereof; and (v) the names of
the officers of the Borrower and Guarantor authorized to sign this Agreement
and the other Loan Documents to be executed by each corporate Borrower and
Guarantor, together with a sample of the true signature of each such officer;


 


(r)                                    Legal opinion of Lindquist & Vennum
P.L.L.P., legal counsel for the Borrower, in the form attached hereto as
“Exhibit C”;


 


(s)                                  Evidence the Facility Fee due pursuant to
Section 2.07 and the costs and expenses (including, without limitation,
attorney’s fees) referred to in Section 7.04, to the extent incurred and
invoiced, shall have been paid in full;


 


22

















 


(t)                                    The results of the Lender’s inspection of
the Collateral, and the Lender’s receipt of an appraisal of the Collateral
acceptable to Lender in its sole discretion;


 


(u)                                 A Phase I Environmental Assessment in
form and substance acceptable to the Lender;


 


(v)                                 The Borrower shall have provided to
Lender evidence of ownership indicating that at least 50% of the owners of
Borrower are eligible borrowers;


 


(w)                               A Commodity Account Control Agreement for
all commodity accounts kept and maintained by the Borrower or any of its
Subsidiaries;


 


(x)                                   A Deposit Account Control Agreement for
all deposit accounts kept and maintained by the Borrower or any of its
Subsidiaries;


 


(y)                                 The Subsidiary Guarantor shall have
executed and delivered to Lender the Guaranty pursuant to which the Subsidiary
Guarantor shall have guaranteed the full and prompt payment and performance by
Borrower of the Notes, Indebtedness, the Supplements and this Agreement;


 


(z)                                   The Subsidiary Guarantor shall have
executed and delivered to the Lender a Security Agreement in all of its assets
to secure its guaranty;


 


(aa)                            Financing Statements in form and content
satisfactory to the Lender and in proper form under the Uniform Commercial Code
of all jurisdictions as may be necessary or, in the opinion of the Lender,
desirable to perfect the security interests created by the Security Agreement
of the Subsidiary Guarantor;


 


(bb)                          The Subsidiary Guarantor shall have
executed and delivered to the Lender a Third Amended and Restated Mortgage in
all of its real property to secure its guaranty;


 


(cc)                            The Personal Guarantor shall have
executed and delivered to the Lender a Guaranty pursuant to which the Personal
Guarantor shall have guaranteed $3,740,000.00 of the Borrower’s Indebtedness
provided that the execution and delivery of the Guaranty by the Personal
Guarantor shall not be a condition precedent to any Advance following the
termination of that Guaranty in accordance with the terms thereof.


 


(dd)                          Evidence that the insurance required by
Sections 5.01(j) and 5.01(r)(xii) has been obtained by the Borrower; and


 


(ee)                            An assignment of the Borrower’s business
interruption insurance policy, duly executed by the Borrower and pursuant to
which the Borrower shall have assigned to the Lender all of the Borrower’s
right, title and interest in and to it’s business interruption insurance
policy, and which assignment shall have been consented to and certified in
writing by the other party(ies) to the insurance policy.


 


23

















 


Section 3.02                                Conditions Precedent to Construction Advances The effectiveness of this Agreement and
obligations of the Lender to make any Construction Advance are subject to the
conditions precedent that the Lender shall have received the following, in form
and substance satisfactory to the Lender:


 


(a)                                  The Participation Fee due pursuant to
Section 2.06 has been paid;


 


(b)                                 The Borrower shall have ordered the
General Contractor to begin construction of the Project, and construction shall
have commenced;


 


(c)                                  A schedule, certified by Borrower as
accurate and complete, setting forth: 
(i) the necessary licenses, permits and consents required by applicable
federal, state, and local governmental entities required for the lawful construction
and operation of the Project; and (ii) the deadlines to obtain such licenses,
permits and consents so that the completion of the Project occurs as scheduled;


 


(d)                                 Lender shall have received in form and
substance acceptable to Lender, an agreement with an Inspecting Engineer of
recognized standing and acceptable to Lender, by which agreement such
Inspecting Engineer agrees to assist Lender in its inspection of the Project
during construction, review and approve requests for Advances on the
Construction Loan on behalf of Lender, and provide such additional services as
Lender may reasonably require at the sole expense of Borrower; and


 


(e)                                  The Borrower shall have provided
commitment to the Lender of its Borrower’s Equity.


 


ARTICLE IV.


REPRESENTATIONS AND WARRANTIES


 


Section 4.01                                Representations and Warranties of the Borrower. The Borrower and each of its
subsidiaries represent and warrant as follows:


 


(a)                                  Borrower. The Borrower and each of its
subsidiaries are limited liability companies duly organized and validly
existing and in good standing under the laws of the State of Minnesota and are
qualified to do business in all jurisdictions in which the nature of their
businesses make such qualification necessary and where failure to so qualify
would have a Material Adverse Effect on their respective financial conditions
or operations. Except for Permit Litigation, the Borrower and each of its
subsidiaries have the power and authority to own and operate their assets and
to carry on their business and to execute, deliver, and perform their respective
obligations under the Loan Documents to which they may become a party. There
are no outstanding subscriptions, options, warrants, calls, or rights
(including preemptive rights) to acquire, and no outstanding securities or
instruments convertible into, membership interests (units) of the Borrower or
any of its subsidiaries, except for those transactions set forth on Schedule
4.01(a);


 


24

















 


(b)                                 The Loan Documents. The execution, delivery and performance
by the Borrower and the Subsidiary Guarantor of the Loan Documents are within
their respective powers, have been duly authorized by all necessary action, do
not contravene:  (i) the articles or
organization or operating agreements of either the Borrower or the Subsidiary
Guarantor; or (ii) any law or any contractual restriction binding on or
affecting the Borrower or the Subsidiary Guarantor, and do not result in or
require the creation of any lien, security interest or other charge or
encumbrance (other than pursuant to the terms thereof) upon or with respect to
any of their respective properties;


 


(c)                                  Governmental Approvals. Except for (i) the Permit Litigation;
(ii) the authorizations required under the Impound Agreement; (iii) the
outstanding permits per the schedule provided under Section 3.02(c) of this
Agreement; and (iv) the registration of the Borrower’s Class A Units pursuant
to Section 12(g) of the Securities Exchange Act of 1934 and regulations
promulgated thereunder relating thereto, no consent, permission, authorization,
order or license of any Governmental Authority or of any party to any agreement
to which any of the Borrower or any of its subsidiaries is a party or by which
they or any of their respective property may be bound or affected, is necessary
in connection with the project, acquisition or other activity being financed by
this Agreement, the execution, delivery, performance or enforcement of the Loan
Documents or the creation and perfection of the liens and security interest
granted thereby, except as such have been obtained and are in full force and
effect or which are required in connection with the exercise of remedies
hereunder;


 


(d)                                 Enforceability. This Agreement is, and each other Loan
Document to which the Borrower or the Subsidiary Guarantor is a party when
delivered will be, legal, valid and binding obligations of the Borrower or the
Subsidiary Guarantor enforceable against the Borrower or the Subsidiary
Guarantor in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditor’s rights generally and by general
principles of equity;


 


(e)                                  Financial Condition and
Operations.
The balance sheets of the Borrower on a consolidated basis with each of its
subsidiaries, as of October 31, 2006, and the related statements of income and,
with respect to the period ended October 31, 2006, the related statement of
cash flow of the Borrower for the fiscal period then ended, copies of which
have been furnished to the Lender, fairly present in all material respects the
financial condition of the Borrower as at such date and the results of the
operations of the Borrower for the period ended on such dates, all in
accordance with generally accepted accounting principles, except for unaudited
statements, consistently applied, and since October 31, 2006, there has been no
material adverse change in such condition or operations, except for the Permit
Litigation, the outstanding licenses, permits and consents per the schedule
provided under Section 3.02(c) and outstanding claims, if any, that Borrower
may have against Fagen, Inc., under the Design – Build Contract between
Borrower and Fagen, Inc.;


 


(f)                                    Litigation. Except as described on Schedule 4.01(f),
there is no pending or threatened action or proceeding affecting the Borrower
or any of its subsidiaries or the transactions contemplated hereby before any
court, governmental agency or arbitrator, which may materially adversely affect
the financial condition or operations of the Borrower. As of the Closing Date,
there are no outstanding judgments against the Borrower or any of its
subsidiaries;


 


25

















 


(g)                                 Use of Proceeds of
Advances, etc.
(i) No proceeds of the Loans will be used to acquire any security in any
transaction which is subject to Sections 13 and 14 of the Securities
Exchange Act of 1934 (provided, however, that this provision shall not prohibit
Borrower from investing in certain value added cooperatives for the purposes of
carrying out their overall business operations); (ii) the Borrower and any of
its subsidiaries are not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve
System); and (iii) no proceeds of the Loans will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock;


 


(h)                                 Liens. There is no lien, security interest or
other charge or encumbrance, and no other type of preferential arrangement,
upon or with respect to any of the properties or income of the Borrower or any
of its subsidiaries, which secures Debt of any Person, except as permitted by
Section 5.02(a) and liens created by the Loan Documents;


 


(i)                                     Taxes. Each of the Borrower and its subsidiaries have filed
or caused to be filed all federal, state and local tax returns that are
required to be filed and have paid all other taxes, assessments, and
governmental charges or levies upon it and its property, income, profits and
assets which are due and payable, except where the payment of such tax,
assessment, government charge or levy is being contested in good faith and by
appropriate proceedings and adequate reserves in compliance with GAAP have been
set aside on the Borrower’s or such subsidiary’s books therefore;


 


(j)                                     Solvency. As of and from and after the date of
this Agreement, the Borrower: 
(i) owns and will own assets the fair saleable value of which are:
(A) greater than the total amount of liabilities (including contingent
liabilities); and (B) greater than the amount that will be required to pay
the probable liabilities of its then existing debts as they become absolute and
matured considering all financing alternatives and potential asset sales
reasonably available to it; (ii) has capital that is not unreasonably
small in relation to its business as presently conducted or any contemplated or
undertaken transaction; and (iii) does not intend to incur and does not
believe that it will incur debts beyond its ability to pay such debts as they
become due;


 


(k)                                  Location of Inventory and
Farm Products; Third Parties in Possession; Crops. The inventory and farm products pledged
as collateral under the Security Agreement are located at the places (or, as
applicable, jurisdictions) specified in Schedule 4.01(k) for the Borrower
and its subsidiaries, except to the extent any such inventory and farm products
are in transit. Schedule 4.01(k) correctly identifies, as of the date
hereof, the landlords or mortgagees, if any, of each of its locations
identified in Schedule 4.01(k) currently leased or owned by the Borrower
or its subsidiaries. Except for the Persons identified on
Schedule 4.01(k), no Person other than the Borrower or its subsidiaries
and the Lender has possession of any of the Collateral. Except as described in
above, none of its Collateral has been located in any location within the past
four months other than as set forth on Schedule 4.01(k) for the Borrower
and its subsidiaries;


 


(l)                                     Office Locations;
Fictitious Names; Predecessor Companies; Tax I.D. Number. Each of the Borrower’s and the
Subsidiary Guarantor’s chief places of business, chief executive offices, and
jurisdiction of organization is located at the place identified for the
Borrower


 


26

















 


and its subsidiary on Schedule 4.01(l). Within the last four
months neither the Borrower or any of its subsidiaries has had any other chief
place of business, chief executive office, or jurisdiction of organization.
Schedule 4.01 (l) also sets forth all other places where the Borrower and
the Subsidiary Guarantor keep their books and records and all other locations where
the Borrower and the Subsidiary Guarantor have a place of business. Neither the
Borrower or the Subsidiary Guarantor does business nor has the Borrower or the
Subsidiary Guarantor done business during the past five (5) years under
any trade-name or fictitious business name except as disclosed on
Schedule 4.01(l). Schedule 4.01(l) sets forth an accurate list of all
names of all predecessor companies of the Borrower and the Subsidiary Guarantor
including the names of any entities it acquired (by stock purchase, asset
purchase, merger or otherwise) and the chief place of business and chief
executive office of each such predecessor company. For purposes of the
foregoing, a “predecessor company” shall mean any Person whose assets or equity
interests are acquired by the Borrower or any of its subsidiaries or who was
merged with or into the Borrower or any of its subsidiaries within the last
four months prior to the date hereof. The Borrower’s and the Subsidiary
Guarantor’s United States Federal Income Tax I.D. Numbers and state
organizational identification numbers are identified on Schedule 4.01(l);


 


(m)                               Title to Properties. Each of the Borrower and its subsidiaries have such
title or leasehold interest in and to the Real Property owned or leased by them
as is necessary or desirable to the conduct of their business and valid and
legal title or leasehold interest in and to all of their Personal Property,
including those reflected on the financial statements of the Borrower and it
subsidiaries previously delivered to Lender, except those which have been
disposed of by the Borrower and its subsidiaries subsequent to the date of such
delivered financial statements which dispositions have been in the ordinary
course of business or as otherwise expressly permitted hereunder;


 


(n)                                 Disclosure. All factual information furnished by or
on behalf of the Borrower or its subsidiaries in writing to the Lender
(including, without limitation, all factual information contained in the Loan
Documents) for purposes of or in connection with this Agreement, the other Loan
Documents or any transaction contemplated herein or therein is, and all other
such factual information hereafter furnished by or on behalf of the Borrower or
its subsidiaries to the Lender, will be true and accurate in all material
respects on the date as of which such information is dated or certified and not
incomplete by omitting to state any fact necessary to make such information not
misleading in any material respect at such time in light of the circumstances under
which such information was provided;


 


(o)                                 Operation of Business. Except for the Permit Litigation, the
outstanding licenses, permits and consents per the schedule provided under
Section 3.02(c) and the registration of Borrower’s Class A Units under Section
12(g) of the Securities Exchange Act of 1934, the Borrower and each of its
subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, necessary to conduct their
businesses substantially as now conducted and will obtain all such licenses,
permits, franchises, patents, copyrights, trademarks, and tradenames, or rights
thereto necessary to conduct its business as presently proposed to be conducted
except those that the failure to so possess could not reasonably be expected to
have a Material Adverse Effect on its financial condition or operations, and
the Borrower and its subsidiaries are not


 


27

















 


in violation of any valid rights of others with respect to any of the
foregoing except violations that could not reasonably be expected to have such
a Material Adverse Effect;


 


(p)                                 Intellectual Property. The Borrower and each of its
subsidiaries owns, or has the legal right to use, all patents, trademarks,
tradenames, copyrights, technology, know-how and processes (the “Intellectual Property”) necessary for them to conduct their
businesses as currently conducted except for those the failure to own or have
such legal right to use could not reasonably be expected to have a Material
Adverse Effect. As of the Closing Date, set forth in Schedule 4.01(p) is a list
of all Intellectual Property registered with the United States Copyright Office
or the United States Patent and Trademark Office and owned by the Borrower and
each of its subsidiaries or that the Borrower and its subsidiaries have the
right to use. Except as provided in Schedule 4.01(p), no claim has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower or any of its subsidiaries know of
any such claim, and, to the knowledge of the Borrower and its subsidiaries, the
use of such Intellectual Property by the Borrower or its subsidiaries does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect;


 


(q)                                 Employee Benefit Plans. Each of the Borrower and its subsidiaries are in
compliance in all material respects with the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder, the failure to comply
with which could have a Material Adverse Effect on the Borrower or any of its
subsidiaries;


 


(r)                                    Investment Company Act. The Borrower and its subsidiaries are
not required to be registered as an “investment company” within the meaning of
the Investment Company Act of 1940, as amended;


 


(s)                                  Compliance with Laws. Each of the Borrower and its subsidiaries are in
compliance in all material respects with all laws, rules, regulations,
ordinances, codes, orders, and the like, the failure to comply with which could
have a Material Adverse Effect on any of the Borrower or its subsidiaries;


 


(t)                                    Environmental Compliance. Borrower and each of its subsidiaries,
except as set forth in Schedule 4.01(t), are in material compliance with all
applicable Environmental Laws; and


 


(u)                                 Material Change. Except as previously disclosed in writing to the
Lender, each of the Borrower and its subsidiaries have performed all of their
material obligations, other than those obligations for which performance is not
yet due, under all Material Contracts and, to the best knowledge of the
Borrower or its subsidiaries, each other party thereto is in compliance with
each such Material Contract. Each such Material Contract is in full force and
effect in accordance with the terms thereof. Each of the Borrower and its
subsidiaries has made available a true and complete copy of each such Material
Contract for inspection by Lender.


 


28
















 


ARTICLE V.


COVENANTS OF THE BORROWER


 


Section 5.01.          Affirmative Covenants.  So long as any
Loan Obligations remain unpaid or the Lender shall have any commitment
hereunder, the Borrower and each of its subsidiaries will, unless the Lender
shall otherwise consent in advance in writing:


 


(a)           Compliance
with Laws, etc.  Comply in
all material respects with all applicable laws, rules, regulations and orders,
such compliance to include, without limitation, (i) all applicable zoning
and land use laws; (ii) all employee benefit and Environmental Laws, and (iii) paying
before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property except to the extent contested in
good faith;


 


(b)           Visitation
Rights; Field Examination.  At any reasonable time and from time to time,
permit the Lender or representatives,  to
(i) examine and make copies of and abstracts from the records and books of
account of the Borrower and each of its subsidiaries, and (ii) enter onto
the property of the Borrower and each of its subsidiaries to conduct
unannounced field examinations and collateral inspections, with such frequency
as Lender in its sole discretion may deem appropriate, and (iii) discuss
the affairs, finances, and accounts of the Borrower and each of its
subsidiaries with any of Borrower’s and its subsidiaries officers or
directors.  Borrower and any of its
subsidiaries consent to and authorize Lender to enter onto the property of
Borrower or any of its subsidiaries for purposes of conducting the
examinations, inspections and discussions provided above.  Upon and during the occurrence of an Event of
Default or in the event that there are deemed by the Lender to be any material
inconsistencies and/or material noncompliance with respect to any financial or
other reporting on the part of the Borrower or any of its subsidiaries, any and
all visits and inspections deemed necessary or desirable on account of such
Event of Default, inconsistency and/or noncompliance shall be at the expense of
the Borrower.  In addition to the
foregoing, at any reasonable time and from time to time, the Borrower and its
subsidiaries also shall permit the Lender or representatives thereof, at the
expense of the Lender, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Borrower or
its subsidiaries, and to discuss the affairs, finances and accounts of the
Borrower or its subsidiaries with any of their respective officers or
directors;


 


(c)           Reporting
Requirements.  Furnish to
the Lender:


 


(i)            As soon as
available, but in no event later than 120 days after the end of each fiscal
year of the Borrower occurring during the term hereof, annual consolidated
financial statements of the Borrower, prepared in accordance with GAAP
consistently applied and in a format that demonstrates any accounting or
formatting change that may be required by the various jurisdictions in which
the business of the Borrower is conducted (to the extent not inconsistent with
GAAP).  Such financial statements
shall:  (i) be audited by
independent certified public accountants selected by the Borrower and
reasonably acceptable to Lender; (ii) be accompanied by a report of such
accountants containing a certified opinion, without qualification, thereon
reasonably acceptable to Lender; (iii) be prepared in reasonable detail,
and in comparative form; and (iv) include a balance 


 


29

















 


sheet, a statement of income, a statement of stockholders’, members’ or
partner’s equity, a statement of cash flows, and all notes and schedules
relating thereto and any management letter;


 


(ii)           Beginning with
the first (1st) month following the Closing Date, as soon as
available and in any event within 30 days after the end of each month,
consolidated balance sheets of the Borrower as of the end of such month and
consolidated statement of income of the Borrower for the period commencing at
the end of the previous fiscal year and ending with the end of such month,
certified by an authorized officer of the Borrower;


 


(iii)          As soon as available but in no event later than 30
days after the end of each of the first three fiscal quarters of each fiscal
year of the Borrower occurring during the term hereof, unaudited quarterly
consolidated financial statements of the Borrower, in each case prepared in
accordance with GAAP consistently applied (except for the omission of footnotes
and for the effect of normal year-end audit adjustments) and in a format that
demonstrates any accounting or formatting change that may be required by
various jurisdictions in which the business of the Borrower is conducted (to
the extent not inconsistent with GAAP). 
Each of such financial statements shall (i) be prepared in
reasonable detail and in comparative form, including a comparison of actual
performance to the budget for such quarter and year-to-date, delivered to
Lender under Subsection 5.01(c)(vi) below, and (ii) include a balance
sheet, a statement of income for such quarter and for the period year-to-date,
and such other quarterly statements as Lender may specifically request which
quarterly statements shall include any and all supplements thereto.   Such quarterly statements shall be
certified by an authorized officer of the Borrower, and be accompanied
by a Compliance Certificate which: (A) states that no Event of Default,
and no event or condition that but for the passage of time, the giving of
notice or both would constitute an Event of Default, has occurred or is in
existence; and (B) shows in detail satisfactory to the Lender the
calculation of, and the Borrower’ compliance with, each of the covenants
contained in Sections 5.01(d), 5.01(e), 5.01(f), and 5.01(g);


 


(iv)          promptly upon
the Lender’s request therefor, copies of all reports and notices which the
Borrower or any of its subsidiaries files under ERISA with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation or the U.S. Department of
Labor or which the  Borrower or any its
subsidiary receives from such Corporation;


 


(v)           notwithstanding
the foregoing Section 5.01(c)(iv), provide to Lender within 30 days after
it becomes aware of the occurrence of any Reportable Event (as defined in Section 4043
of ERISA) applicable to the Borrower or any of its Subsidiaries, a statement
describing such Reportable Event and the actions it proposes to take in
response to such Reportable Event;


 


(vi)          by  November 1 of each fiscal year of the
Borrower, an annual (with monthly break out) operating and capital assets
budget of the Borrower for the immediately succeeding fiscal year containing,
among other things, pro forma financial statements and forecasts for all
planned lines of business;


 


(vii)         as soon as available but in any event not more than
30 days after the end of each month, production reports for the
immediately preceding calendar month setting forth


 


30

















 


corn inputs, ethanol output, DDGS output, natural gas usage and CO2
output, together with such additional production information as reasonably
requested by Lender;


 


(viii)        promptly, upon the occurrence of an Event of Default
or an event or condition that but for the passage of time or the giving of
notice or both would constitute an Event of Default, notice of such Event of
Default or event;


 


(ix)           promptly after
the receipt thereof, a copy of any management letters or written reports
submitted to the Borrower by its independent certified public accountants with
respect to the business, financial condition or operation of the Borrower;


 


(x)            promptly after
the receipt thereof, a copy of any notice of default under any Long-Term
Marketing Agreement;


 


(xi)           furnish to the
Lender, promptly after transmittal or filing thereof by the Borrower, copies of
all proxy statements, notices and reports as it shall send to its members and
copies of all registration statements (without exhibits) and all reports which
it files with the Securities and Exchange Commission (or any governmental body
or agency succeeding to the functions of the Securities and Exchange
Commission), and promptly after the receipt thereof by the Borrower, copies of
all management letters or similar documents submitted to the Borrower by
independent certified public accountants in connection with each annual and any
interim audit of the accounts of the Borrower or of the Borrower and any of its
Subsidiaries.


 


(xii)          such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its respective
subsidiaries as the Lender may from time to time reasonably request;


 


(xiii)         promptly after the commencement thereof, notice of
the commencement of all actions, suits, or proceedings before any court,
arbitrator, or government department, commission, board, bureau, agency, or
instrumentality affecting the Borrower or any of its subsidiaries which, if
determined adversely, could have a Material Adverse Effect on any of the
Borrower or its subsidiaries;


 


(xiv)        without limiting the provisions of Section 5.01(c)(xiii)
above, promptly after receipt thereof, notice of the receipt of all pleadings,
orders, complaints, indictments, or any other communication alleging a
condition that may require the Borrower or any of its subsidiaries to undertake
or to contribute to a cleanup or other response under all laws relating to
environmental protection, or which seek penalties, damages, injunctive relief,
or criminal sanctions related to alleged violations of such laws, or which
claim personal injury or property damage to any person as a result of environmental
factors or conditions;


 


(xx)          promptly after
filing, receipt or becoming aware thereof, copies of any filings or
communications sent to and notices or other communications received by the
Borrower or any of its subsidiaries from any Governmental Authority, including,
without limitation, the Securities and Exchange Commission, the FCC, the PUC,
or any other state utility commission relating to any 


 


31

















 


material noncompliance by the Borrower or any of its subsidiaries with
any laws or with respect to any matter or proceeding the effect of which, if
adversely determined, could have a Material Adverse Effect on any of the
Borrower of its subsidiaries;


 


(xxi)         promptly after becoming aware thereof, notice of any
matter which has had or could have a Material Adverse Effect on any of the
Borrower or its subsidiaries.


 


(d)           
Working Capital.  Achieve and
maintain, on a consolidated basis, Working Capital of at least $3.0 million at
the end of the 12th month following the Closing Date.  Achieve and maintain Working Capital of at
least $5.0 million at the end of the 24th month following the
Closing Date.  Thereafter, continually
maintain Working Capital, on a consolidated basis, of at least $5.0 million;


 


(e)           Tangible
Net Worth.  On the
Closing Date, the Borrower’s Tangible Net Worth shall be not less than
$39,000,000.00 on a consolidated basis. 
After the Closing Date, the Borrower shall maintain Tangible Net Worth,
measured annually on a consolidated basis, in an amount equal to the lesser
of:  (i) the Borrower’s Tangible Net
Worth for the immediately preceding fiscal year plus $500,000.00; or (ii) $39,000,000.00
plus the Borrower’s retained earnings at the end of the current fiscal year;


 


(f)            Owner Equity Ratio.  Maintain at all times during
the term of this Agreement, an Owner Equity Ratio of at least 50%, beginning at
the end of the 48th month following the Closing Date and measured
annually thereafter on a consolidated basis;


 


(g)           Fixed
Charge Coverage Ratio.  Maintain
a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00, measured initially
at the end of the 12th month following the Closing Date and
maintained and measured annually thereafter on a consolidated basis.


 


(h)           Liens.  There shall be no lien, security interest or
other charge or encumbrance, and no other type of preferential arrangement,
upon or with respect to any of the properties or income of the Borrower or any
of its subsidiaries, which secures Debt of any Person, except for the security
interests of the Security Agreement or except as permitted by Section 5.02(a);


 


(i)            Landlord
and Mortgagee Waivers. 
Obtain and furnish to the Lender as soon as available, waivers,
acknowledgments and consents, duly executed by each:  (i) real property owner, landlord and
mortgagee having an interest in any of the premises owned or leased by the
Borrower or any of  its subsidiaries or
in which any Collateral of the Borrower or any of its subsidiaries is located
or to be located (and if no Collateral is located at a parcel of property not
owned or leased by a Borrower or any of its subsidiaries, no such waivers,
acknowledgments or consents will be required); and (ii) each third party
holding any Collateral, all in form and substance acceptable to the Lender, except
as otherwise agreed to by the Lender;


 


(j)            Insurance.  Maintain insurance with financially sound and
reputable insurance companies in such amounts and covering such risks as are
usually carried by entities engaged in similar businesses and owning similar
properties in the same general areas in which the 


 


32

















 


Borrower and any of its subsidiaries operate, and make such increases
in the type of amount or coverage as Lender may reasonably request, provided that
in any event the Borrower will maintain and cause each of its subsidiaries to
maintain workers’ compensation insurance, property insurance and comprehensive
general liability insurance reasonably satisfactory to the Lender.  All such policies insuring any collateral for
the Borrower’s obligations to Lender shall have lender or mortgagee loss
payable clauses or endorsements in form and substance acceptable to
Lender.  Each insurance policy covering
Collateral shall be in compliance with the requirements of the Security
Agreement;


 


(k)           Property
and Insurance Maintenance. 
Maintain and preserve all of its property and each and every part and
parcel thereof that is necessary to or useful in the proper conduct of its
business in good repair, working order, and condition, ordinary wear and tear
excepted, and in material compliance with all applicable laws, and make all
alterations, replacements, and improvements thereto as may from time to time be
necessary in order to ensure that its properties remain in good working order
and condition and compliance.  The
Borrower and each of its subsidiaries agree that upon the occurrence and
continuing existence of an Event of Default, at Lender’s request, which request
may not be made more than once a year, the Borrower and each of its
subsidiaries will furnish to Lender a report on the condition of the Borrower’s
and any of its subsidiaries’ property prepared by a professional engineer
satisfactory to Lender;


 


(l)            Keeping
Books and Records. 
Maintain and cause each of its subsidiaries to, maintain proper books of
record and account in which full, true, and correct entries in conformity with
generally accepted accounting principles shall be made of all dealings and
transactions in relation to its business and activities;


 


(m)          Food
Security Act Compliance.  If the Borrower or any of its subsidiaries
acquire any Collateral which may have constituted farm products in the
possession of the seller or supplier thereof, such Borrower or subsidiary
shall, at its own expense, use its commercially reasonable efforts to take such
steps to insure that all Liens (except the liens granted pursuant hereto) in
such acquired Collateral are terminated or released, including, without
limitation, in the case of such farm products produced in a state which has
established a Central Filing System (as defined in the Food Security Act),
registering with the Secretary of State of such state (or such other party or
office designated by such state) and otherwise take such reasonable actions
necessary, as prescribed by the Food Security Act, to purchase farm products
free of liens (except the liens granted pursuant hereto); provided, however,
that such Borrower or any of its subsidiaries may contest and need not obtain
the release or termination of any lien asserted by any creditor of any seller
of such farm products, so long as it shall be contesting the same by proper
proceedings and maintain appropriate accruals and reserves therefor in
accordance with the generally accepted accounting principles.  Upon the Lender’s request made, the Borrower
and each of its subsidiaries agree to forward to the Lender promptly after
receipt copies of all notices of liens and master lists of Effective Financing
Statements delivered to the Borrower and its subsidiaries pursuant to the Food
Security Act, which notices and/or lists pertain to any of the Collateral.  Upon the Lender’s request, the Borrower and
each of its subsidiaries agree to provide the Lender with the names of Persons
who supply the Borrower and its subsidiaries with such farm products and such
other information as the Lender may reasonably request with respect to such
Persons;


 


33

















 


(n)           Warehouse
Receipts.  If any
warehouse receipt or receipts in the nature of a warehouse receipt is issued in
respect of any portion of the Collateral, then the Borrower and its
subsidiaries:  (i) will not permit
such warehouse receipt or receipts in the nature thereof to be “negotiable” as
such term is used in Article 7 of the Uniform Commercial Code; and (ii) will
deliver all such receipts to the Lender (or a Person designated by the Lender)
within five (5) days of the Lender’s request and from time to time
thereafter.  If no Event of Default
exists, the Lender agrees to deliver to such Borrower or subsidiary any receipt
so held by the Lender upon such Borrower’s request in connection with such sale
or other disposition of the underlying inventory, if such disposition is in
ordinary course of  the Borrower’s or
subsidiary’s business;


 


(o)           Management of Borrower.  Management of the Borrower shall be
maintained as set forth on Schedule 5.01(o) hereto, unless otherwise
approved in Lender’s reasonable discretion;


 


(p)           Compliance
with Other Agreements. 
Borrower will perform in all material respects all obligations and abide
in all material respects by all covenants and agreements contained in the
following agreements:  (i) any and
all Long Term Marketing Agreements; and (ii) any other Material Contracts;


 


(q)           Additional
Assurances.  Make, execute
and deliver to Lender such promissory notes, mortgages, deeds of trust,
financing statements, control agreements, instruments, documents and other
agreements as Lender or its counsel may reasonably request to evidence and
secure the Loans and to perfect all Security Interest; and


 


(r)            Construction of Project.  Borrower shall:


 


(i)            diligently
proceed with construction of the Project in accordance with the Plans and
Specifications and in accordance with all applicable laws and ordinance and
will complete the Project;


 


(ii)           use the
proceeds of all Advances solely to pay the Project Costs as specified in the
Project Sources and Uses Statement;


 


(iii)          use its
commercially reasonable best efforts to require the Contractor(s) to
comply with all rules, regulations, ordinances and laws relating to work on the
Project;


 


(iv)          obtain the
Lender’s prior written approval of any change in the Plans and Specifications
for the Project approved by the Lender which might materially adversely affect
the value of the Lender’s security, and has a cost of $25,000.00 or
greater.  The Lender will have a
reasonable time to evaluate any requests for its approval of any changes
referred to in this paragraph. The Lender may approve or disapprove changes in
its discretion, subject to the foregoing provisions of this Section 5.01(r)(iv).  If it reasonably appears to the Lender that
any change may increase the Project Costs, the Lender may require the Borrower
to deposit additional funds with the Lender 


 


34

















 


pursuant to the provisions
of this Agreement in an amount sufficient to cover the increased costs as a
condition to giving its approval;


 


(v)           comply with and keep in
effect all necessary permits and approvals obtained from any Governmental
Authority relating to the lawful construction of the Project.  The Borrower will comply with all applicable
existing and future laws, regulations, orders, and requirements of any
Governmental Authority, judicial, or legal authorities having jurisdiction over
the Real Property or Project, and with all recorded restrictions affecting the
Real Property;


 


(vi)          furnish to the
Lender from time to time on request by the Lender, in a form acceptable to the
Lender, correct lists of all contractors and subcontractors employed in
connection with construction of the Project and true and correct copies of all
executed contracts and subcontracts.  The
Lender may contact any contractor or subcontractor to verify any facts disclosed
in the lists, Borrower must consent to the disclosure of such information by
the contractors and subcontractors to Lender or its agents upon Lender’s
request, and Borrower must assist Lender or its agents in obtaining such
information upon Lender’s request;


 


(vii)         upon completion
of the building foundation of the Project, deliver to the Lender an “as-built”
survey of the Real Property which:  (a) sets
forth the location and exterior lines and egress and other improvements
completed on the Real Property and demonstrates compliance with all applicable
setback requirements; (b) demonstrates that the Project is entirely within
the exterior boundaries of the Real Property and any building restriction lines
and does not encroach upon any easements or rights-of-way; and (c) contains
such other information as the Lender may reasonably request;


 


(viii)        not purchase
any materials, equipment, fixtures, or articles of personal property placed in
the Project prior to the Construction Loan Maturity Date under any security
agreement or other agreement where the seller reserves or purports to reserve
title or the right of removal or repossession, or the right to consider them
personal property after their incorporation in the work of construction, unless
authorized by the Lender in writing;


 


(ix)           provide the Lender
and its representatives with access to the Real Property and the Project at any
reasonable time and upon reasonable notice to enter the Real Property and
inspect the work or construction and all materials, plans, specifications, and
other matters relating to the construction. 
The Lender will also have the right to, at any reasonable time and upon
reasonable notice, examine, copy, and audit the books, records, accounting
data, and other documents of the Borrower and its contractors relating to the
Real Property or construction of the Project;


 


(x)            pay and
discharge all claims and liens for labor done and materials and services
furnished in connection with the construction of the Project.  The Borrower will have the right to contest
in good faith any claim or lien, provided that it does so diligently and
without prejudice to the Lender or the ability to obtain title insurance in the
manner required by this Agreement and the Disbursing Agreement.  Upon the Lender’s request, the Borrower will
promptly 


 


35

















 


provide a bond, cash deposit, or other
security reasonably satisfactory to the Lender to protect the Lender’s interest
and security should the contest be unsuccessful;


 


(xi)           at the Lender’s
request and expense, post signs on the Real Property for the purpose of
identifying the Lender as the “Lender.” 
At the request of the Lender, or the participating local community
banks, the Borrower will use its reasonable best efforts to identify the Lender
as the lender in publicity concerning the Project;


 


(xii)          maintain in
force until full payment of the Loan builder’s risk  insurance in such amounts, form, risk
coverage, deductibles, insurer, loss payable and cancellation provisions as
reasonably required by the Lender.  The
Lender’s approval, however, will not be a representation of the solvency of any
insurer or the sufficiency of any amount of insurance;


 


(xiii)         cooperate at
all times with the Lender in bringing about the timely completion of the
Project, and resolve all disputes arising during the work of construction in a
manner which will allow work to proceed expeditiously.  With respect to such disputes, the Borrower
will have the right to contest in good faith claims resulting in disputes,
provided that it does so diligently and without prejudice to the Lender.  Upon the Lender’s request, the Borrower will
promptly provide a bond, cash deposit, or other security reasonably
satisfactory to the Lender to protect the Lender’s interest and security should
the contest be unsuccessful;


 


(xiv)        pay the Lender’s
and the Disbursing Agent’s out-of-pocket costs and expenses incurred in
connection with the making or disbursement of the Loans or in the exercise of
any of its rights or remedies under this Agreement, including but not limited
to title insurance and escrow charges, disbursing agent fees, recording
charges, and mortgage taxes, reasonable legal fees and disbursements, and
reasonable fees and costs for services which are not customarily performed by
the Lender’s salaried employees and are not specifically covered by the fees
charged to originate the Loan, if any. 
The provision of this paragraph will survive the termination of this
Agreement and the repayment of the Loan;


 


(xv)         keep true and
correct financial books and records on a cash basis for the construction of the
Project and maintain adequate reserves for all contingencies.  If required by the Lender, the Borrower will
submit to the Lender at such times as it requires (which will in no event be
more often than monthly) a statement which accurately shows the application of
all funds expended to date for construction of the Project and the source of
those funds as well as the Borrower’s best estimate of the funds needed to
complete the Project and the source of those funds.  The Borrower will promptly supply the Lender
with any financial statements or other information concerning its affairs and
properties as the Lender may reasonably request, and will promptly notify the
Lender of any material adverse change in its financial condition or in the
physical condition of the Property or Project;


 


(xvi)        comply with the
requirements of any commitment or agreement entered into by Borrower with any
Governmental Authority to assist the construction or financing of the Real Property
and/or Project and with the terms of all applicable laws, regulations, and
requirements governing such assistance;


 


36

















 


(xvii)       indemnify and
hold the Lender harmless from and against all liabilities, claims, damages,
reasonable costs, and reasonable expenses (including but not limited to
reasonable legal fees and disbursements) arising out of or resulting from any
defective workmanship or materials occurring in the construction of the
Project.  Upon demand by the Lender, the
Borrower will defend any action or proceeding brought against the Lender
alleging any defective workmanship or materials, or the Lender may elect to
conduct its own defense at the reasonable expense of the Borrower.  The provisions of this paragraph will survive
the termination of this Agreement and the repayment of the Loan; and


 


(xviii)      obtain and
deliver to the Lender copies of all necessary occupancy certificates relating
to the Project.


 


Section 5.02.          Negative Covenants.  So long as any of the Loan Obligations remain
unpaid or the Lender shall have any commitment hereunder, the Borrower will
not, without the prior written consent of the Lender:


 


(a)           Liens, etc.  Create or
suffer to exist, or permit any of its subsidiaries to create or suffer to
exist, any lien, security interest or other charge or encumbrance, or any other
type of preferential arrangement, upon or with respect to any of its
properties, whether now owned or hereafter acquired, or assign, or permit any
of its subsidiaries to assign, any right to receive income, in each case to
secure any Debt (as defined below) of any Person, other than:


 


(i)            those described
on Schedule 5.02(a) hereto and renewals and extensions on the same or
substantially the same terms and conditions and at no increase in the debt or
obligation; or


 


(ii)           liens or
security interests which are subject to an intercreditor agreement in form and
substance acceptable to Lender in Lender’s sole discretion; or


 


(iii)          the liens or security interests of the Security
Agreement; or


 


(iv)          liens (other
than liens relating to environmental liabilities or ERISA) for taxes,
assessments, or other governmental charges that are not more than 30 days
overdue or, if the execution thereof is stayed, which are being contested in
good faith by appropriate proceedings diligently pursued and for which adequate
reserves have been established; or


 


(v)           liens of
warehousemen, carriers, landlords, mechanics, materialmen, or other similar
statutory or common law liens securing obligations that are not yet due and are
incurred in the ordinary course of business or, if the execution thereof is
stayed, which are being contested in good faith by appropriate proceedings
diligently pursued and for which adequate reserves have been established in
accordance with generally accepted accounting principles; or


 


(vi)          liens resulting
from good faith deposits to secure payments of workmen’s compensation
unemployment insurance, or other social security programs or to secure the 


 


37

















 


performance of tenders, leases, statutory obligations, surety, customs
and appeal bonds, bids or contracts (other than for payment of Debt); or


 


(vii)         any attachment or judgment lien not constituting an
Event of Default; or


 


(viii)        liens arising from filing UCC financing statements
regarding leases not prohibited by this Agreement; or


 


(ix)           customary
offset rights of brokers and deposit banks arising under the terms of
securities account agreements and deposit agreements; or


 


(x)            any real estate
easements and easements, covenants and encumbrances that customarily do not
affect the marketable title to real estate or materially impair its use; or


 


(xi)           purchase money
security interests in equipment and vehicles, not to exceed $25,000.00 for any
single purchase.


 


(b)           Distributions, etc.  Declare or pay
any dividends, purchase or otherwise acquire for value any of its membership
interests (units) now or hereafter outstanding, or make any distribution of
assets to its stockholders, members or general partners as such, or permit any
of its subsidiaries to purchase or otherwise acquire for value any stock,
membership interest or partnership interest of the Borrower, provided, however,
the Borrower and its subsidiaries may:  (i) declare
and pay dividends and distributions payable in membership interests (units); (ii) purchase
or otherwise acquire shares of the membership interests (units) of the Borrower
or its subsidiaries with the proceeds received from the issuance of new
membership interests (units); (iii) so long as the Borrower first provides
such supporting documentation as the Lender may 
request with respect to any fiscal year of the Borrower, the Borrower
may pay aggregate cash dividends/distributions, during such fiscal year in an
amount not to exceed the amount necessary for the members of the Borrower to
pay their Income Taxes on such member’s allocable share of the taxable income
of the Borrower for such taxable year or fiscal year, as applicable (“Tax Distributions”); (iv) pay redemptions, dividends or
distributions in an amount not to exceed, in the aggregate, 65% of the Borrower’s
Net Income (“Allowed Distributions”); (v) pay
dividends or distributions which are immediately reinvested in the Borrower (“Reinvestment Distributions”) provided, however, that
immediately prior to the proposed payment of any such dividends or
distributions, or after giving effect thereto, no Default or Event of Default
shall exist; and (vi) complete the transactions reflected on Schedule
4.01(a); or


 


(c)           Capital
Expenditures.  Except for costs identified in the Project
Costs and Uses Statement, make any investment in fixed assets in the aggregate
amount of $500,000.00 during any fiscal year during  the term of this Agreement; or


 


(d)           Consolidation, Merger,
Dissolution, Etc.  Directly or indirectly, merge
or consolidate with any other Person or permit any other Person to merge into
or with or consolidate with the Borrower or any of its subsidiaries; or


 


38

















 


(e)           Indebtedness,
etc.  Create, incur, assume or
suffer to exist any Debt or other indebtedness, liabilities or obligations,
whether matured or unmatured, liquidated or unliquidated, direct or contingent,
joint or several, except:  (i) the
liabilities of the Borrower to the Lender hereunder; (ii) trade accounts
payable and accrued liabilities (other than Debt) arising in the ordinary
course of the Borrower’s or any of its subsidiaries business; (iii) Subordinated
Debt; (iv) the liabilities of the Borrower or its subsidiaries described
on Schedule 5.02(a); and (v) under Material Contracts; or


 


(f)            Organization;
Name; Chief Executive Office.  Change its state of organization, name or the
location of its chief executive office without the prior written consent  of the Lender, except that the principal
office shall be moved to the plant site when construction of the administration
office is substantially complete; or


 


(g)           Loans, Guaranties, etc.  Make any loans
or advances to (whether in cash, in-kind, or otherwise) any Person, or directly
or indirectly guaranty or otherwise assure a creditor against loss in respect
of any indebtedness, obligations or liabilities (contingent or otherwise) of
any Person; or


 


(h)           Subsidiaries;
Affiliates.   Form or otherwise acquire any subsidiary
or affiliated business, or acquire the assets of or acquire any equity or
ownership interest in any Person, unless such subsidiary, affiliate or Person
executes and delivers to the Lender:  (i) a
guaranty of all of the Loan Obligations, in form and substance acceptable to
the Lender in its sole discretion; (ii) security agreements in form
substantially similar to the Security Agreement; and (iii) such other
documents and amendments to this Agreement and the other Loan Documents as the
Lender shall reasonably require; or


 


(i)            Transfer
of Assets.  Sell,
lease, assign, transfer, or otherwise voluntarily dispose of any of its assets,
or permit any of its subsidiaries to sell, lease, assign, transfer, or
otherwise voluntarily dispose of any of its assets except:  (i) dispositions of inventory in the
ordinary course of business; and (ii) dispositions of: (A) obsolete
or worn out equipment; (B) equipment or real property not necessary for
the operation of its business; or (C) equipment or real property which is
replaced with property of equivalent or greater value as the property which is
disposed;


 


(j)            Lines
of Business.  Engage in any
line or lines of business activity other than the production of ethanol and
DDGS and any activities incidental or reasonably related thereto;


 


(k)           Transactions
with Affiliates.  Directly or indirectly enter into or permit
to exist any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate or with any
director, officer or employee of the Borrower or any Affiliate, except (i) transactions
listed on Schedule 5.02(k), (ii) transactions in the ordinary course of
and pursuant to the reasonable requirements of the business of the Borrower or
any of its subsidiaries and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to the Borrower or such
subsidiary than would be obtained in a comparable arm’s length transaction with
a person or entity that is not an Affiliate, and (iii) payment of
compensation to directors, officers 


 


39

















 


and employees in the ordinary course of business for services actually
rendered in their capacities as directors, officers and employees, provided
such compensation is reasonable and comparable with compensation paid by
companies of like nature and similarly situated.  Notwithstanding the foregoing, upon the
election of Lender, no payments may be made with respect to any items set forth
in clauses (i) and (ii) of the preceding sentence upon the occurrence
and during the continuation of a Potential Default or an Event of Default; or


 


(l)            Management
Fees and Compensation.  Directly or
indirectly pay any management, consulting or other similar fees to any person,
except legal or consulting fees paid to persons or entities that are not
Affiliates of the Borrower or its subsidiaries for services actually rendered
and in amounts typically paid by entities engaged in the Borrower’s or such
subsidiary’s business; or


 


(m)          Material
Control or Management.  (i) One or more of the members of the
Borrower as of the date hereof shall fail, in the aggregate, to own, directly
or indirectly, 100% of the common (voting) membership interests in the
Borrower, or (ii) there should be any change in the chief executive
officer of the Borrower, unless within 90 days of such event a person
reasonably acceptable to Lender is appointed to such position, or (iii) the
Borrower shall fail at any time to hold, legally or beneficially, 100% of the
equity of each of the Guaranteeing Subsidiaries.


 


ARTICLE VI.


EVENTS OF DEFAULT AND REMEDIES


 


Section 6.01.          Events of Default.  Each of the following events shall be an “Event of Default”:


 


(a)           The Borrower shall fail to
pay any installments of principal or interest, fees, expenses, charges or other
amounts payable hereunder or under the other Loan Documents or to make any
deposit of funds required under this Agreement when due; or


 


(b)           Any
representation or warranty made by the Borrower, or any of its officers or
directors under or in connection with any Loan Document shall prove to have
been incorrect in any material respect when made; or


 


(c)           The Borrower
shall fail to perform or observe any term, covenant or agreement contained in Sections
5.01(d), (e), (f) or (g) or take any action as prohibited by Section 5.02;
or


 


(d)           The Borrower
shall fail to deliver the financial statements or Compliance Certificate under Section 5.01(c) within
5 days of the date due; or


 


(e)           The Borrower
shall fail to perform or observe any term, covenant or agreement contained in
any Loan Document (other than those listed in clauses (a) through (d) of
this Section 6.01) on its part to be performed or observed (other than the
covenants to pay the Loan Obligations) and any such failure shall remain
unremedied for ten (10) days after written notice 


 


40

















 


thereof shall have been given to the Borrower by the Lender, provided,
however, that no Event of Default shall be deemed to exist if, within said ten (10) day
period, Borrower have commenced appropriate action to remedy such failure and
shall diligently and continuously pursue such action until such cure is
completed, unless such cure is or cannot be completed within thirty (30) days
after written notice shall have been given; or


 


(f)            The Borrower
shall fail to pay any indebtedness in an amount in excess of $50,000.00 (either
in any individual case or in the aggregate) excluding indebtedness evidenced by
the Notes and excluding Ordinary Trade Payable Disputes, or any interest or
premium thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such indebtedness; or any other default under any agreement or
instrument relating to any such indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such indebtedness
(excluding Ordinary Trade Payable Disputes); or any such indebtedness shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof
(excluding Ordinary Trade Payable Disputes); or


 


(g)           The Borrower
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its property, and, in
the case of any such proceeding instituted against it (but not instituted by
it) either such proceeding shall remain undismissed or unstayed for a period of
30 days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur; or the Borrower shall take any
corporate action to authorize any of the actions set forth above in this
subsection; or


 


(h)           Any one or more
judgment(s) or order(s) for the payment of money in excess of
$50,000.00 in the aggregate shall be rendered against the Borrower and
either:  (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order; or (ii) there
shall be any period of 10 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or


 


(i)            Any provision
of any Loan Document shall for any reason cease to be valid and binding on the
Borrower or the Borrower shall so state in writing; or


 


(j)            The Mortgage or
the Security Agreement shall for any reason, except to the extent permitted by
the terms thereof, cease to create a valid lien, encumbrance or security
interest in any of the property purported to be covered thereby; or


 


41

















 


(k)           The termination
of any Long Term Marketing Agreement prior to its stated expiration date,
unless such Long Term Marketing Agreement is replaced by another Long Term
Marketing Agreement acceptable to the Lender, within thirty (30) days of the
termination of such Long Term Marketing Agreement; or


 


(l)            The Borrower
dissolves, suspends, or discontinues doing business; or


 


(m)          Construction of
the Project is halted or abandoned prior to completion for any period of thirty
(30) consecutive days for any cause which is not beyond the reasonable control
of the Borrower, its contractors and subcontractors; or


 


(n)           The
construction of the Project shall be delayed for any reason and for such period
that, in the reasonable judgment of the Lender, the Project will not be
completed.  If such delay is curable and
if Borrower has not been given a notice of a similar breach within the
preceding twelve (12) months, it may be cured (and no Event of Default will
have occurred) if Borrower cures the failure within thirty (30) days, which
shall include advancing the progress of the Project to the point that, in the
reasonable judgment of the Lender, the Project will be completed;


 


(o)           Any event,
change or condition not referred to elsewhere in this Section 6.01 should
occur which results in a Material Adverse Effect on the Borrower, any
subsidiary or any guarantor of the Borrower’s obligations hereunder; or


 


(p)           Any guarantee,
suretyship, subordination agreement, maintenance agreement, or other agreement
furnished in connection with the Borrower’s obligations hereunder and under any
Note shall, at any time, cease to be in full force and effect, or shall be
revoked or declared null and void, or the validity or enforceability thereof
shall be contested by the guarantor, surety or other maker thereof, or the
Guarantor shall deny any further liability or obligations thereunder, or shall
fail to perform its obligations thereunder, or any representation or warranty
set forth therein shall be breached, or the Subsidiary Guarantor shall breach
or be in default under the terms of any other agreement with Lender (including
any loan agreement or security agreement); 
or


 


(q)           The loss,
suspension or revocation of, or failure to renew, any franchise, license,
certificate, permit, authorization, approval or the like now held or hereafter
acquired by the Borrower or any of its subsidiaries, if such loss, suspension,
revocation or failure to renew could reasonably be expected to have a Material
Adverse Effect on the Borrower or (ii) any regulatory or Governmental
Authority replaces the management of the Borrower or any of its subsidiaries or
assumes control over the Borrower or such subsidiary; or


 


(r)            The Borrower or
any of its subsidiaries should breach or be in default under a Material
Contract in any material respect, including any material breach or default, or
any termination shall have occurred, or any other event which would permit any
party other than the Borrower or its subsidiaries to cause a termination, or
any Material Contract shall have ceased for any reason to be in full force and
effect prior to its stated or optional expiration date.


 


42

















 


(s)           The Borrower or
any of its subsidiaries should terminate, change, amend or restate, without the
Lender’s prior consent any Material Contract, or any material Construction
Contract.


 


(t)            Any
Governmental Authority having jurisdiction over the Permit Litigation shall
have issued any order, judgment or decree which has the affect of revoking or
suspending the Air Quality Emissions permit for the Project.


 


Section 6.02.          Remedies.  Upon the occurrence of an Event of Default
and at any time while such Event of Default is continuing, the Lender:


 


(a)           may accelerate
the due date of the unpaid principal balance of the Notes, all accrued but
unpaid interest thereon and all other amounts payable under this Agreement
making such amounts immediately due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith immediately due and
payable, without presentment, notice of intent to accelerate or notice of
acceleration, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower and its subsidiaries; provided, however, that in the event of an actual or deemed
entry of an order for relief with respect to any of the Borrower or any of its
subsidiaries under the Federal Bankruptcy Code, the Notes, all such
interest and all such amounts shall automatically become due and payable,
without presentment, demand, protest or any notice of any kind, all of which
are hereby expressly waived by the Borrower and its subsidiaries;


 


(b)           may withhold or
direct the Disbursing Agent to withhold any one or more Advances in its
discretion,  and terminate the Lender’s
obligations, if any, under this Agreement to make any Advances whereupon the
commitment and obligations of the Lender to extend credit or to make Advances
hereunder shall terminate, and no disbursement of Loan funds by the Lender will
cure any default of the Borrower, unless the Lender agrees otherwise in
writing;


 


(c)           may, by notice
to the Borrower and its subsidiaries, obtain the appointment of a receiver to
take possession of all Collateral of the Borrower and its subsidiaries,
including, but not limited to all personal property, including all fixtures and
equipment leased, occupied or used  by
any of the Borrower and its subsidiaries. 
Borrower and each of its subsidiaries hereby irrevocably consent to the
appointment of such receiver and agree to cooperate and assist any such
receiver as reasonably requested to facilitate the transfer of possession
of  the Collateral to such receiver and
to provide such receiver access to all books, records, information and
documents as requested by such receiver;


 


(d)           in its
discretion, enter the Real Property and take any and all actions necessary in
its judgment to complete construction of the Project, including but not limited
to making changes in Plans and Specifications, work or materials, and entering
into, modifying, or terminating any contractual arrangements, subject to the
Lender’s right at any time to discontinue any work without liability.  If the Lender elects to complete the Project,
it will not assume any liability to the Borrower or any other person for
completing the Project or for the manner or quality of construction of the
Project, and the Borrower expressly waives any such liability.  The Borrower irrevocably appoints the Lender
as its attorney-in-fact, with full power of substitution, to complete the
Project in the 


 


43

















 


Borrower’s name, or the Lender may elect to complete construction in
its own name.  In any event, all sums
expended by the Lender in completing construction will be considered to have
been disbursed to the Borrower and will be secured by the Mortgage and any
other instruments or documents securing the Loans, and any such sums that cause
the principal amount of the Loans to exceed the face amount of the Notes will
be considered to be an additional loan to the Borrower bearing interest at the
rate provided in the Notes and will be secured by the Mortgage  and any other instrument or documents
securing the Loans.  The Lender will not
have any obligation under the Plans and Specifications prepared for the
Project, any studies, data, and drawings with respect thereto prepared by or
for Borrower, or the contracts and agreements relating to the Plans and
Specifications, or the aforesaid studies, data, and drawings, or to the
construction of the Project unless it expressly hereafter agrees in
writing.  The Lender will have the right
to exercise any rights of the Borrower under those contracts and agreements or
with respect to such Plans and Specifications, studies, data, and drawings upon
any default by the Borrower under this Agreement, and shall have such other
rights and remedies with respect thereto as are afforded a secured creditor
under applicable law; and


 


(e)           may, by notice
to the Borrower, require the Borrower to pledge to the Lender as security for
the Loan Obligations an amount in immediately available funds equal to the then
outstanding Letter of Credit Liabilities, such funds to be held in an interest
bearing cash collateral account at the Lender without any right of withdrawal
by the Borrower; provided, however, that in the
event of an actual or deemed entry of an order for relief with respect to the
Borrower or any of its subsidiaries under the Federal Bankruptcy Code, the
Borrower shall, without notice, pledge to the Lender as security for the Loan
Obligations an amount in immediately available funds equal to the then
outstanding Letter of Credit Liabilities, such funds to be held in such an
interest bearing cash collateral account at the Lender;


 


(f)            may exercise
all rights to notify or instruct any Commodity Intermediary under any Commodity
Account Control Agreement or Bank under any Deposit Account Control Agreement;


 


(g)           may apply any
funds held by Lender in a Program Account toward the outstanding Loan
Obligations of the Borrower; and


 


(h)           may exercise
any other rights and remedies afforded to the Lender under the Loan Documents
or by applicable law or equity.


 


Section 6.03.          Remedies
Cumulative.  Each and every power or remedy herein
specifically given shall be in addition to every other power or remedy,
existing or implied, given now or hereafter existing at law or in equity, and
each and every power and remedy herein specifically given or otherwise so
existing may be exercised from time to time and as often and in such order as
may be deemed expedient by Lender, and the exercise or the beginning of the
exercise of one power or remedy shall not be deemed a waiver of the right to
exercise at the same time or thereafter any other power or remedy. No delay or
omission of Lender in the exercise of any right or power accruing hereunder
shall impair any such right or power or be construed to be a waiver of any
default or acquiescence therein.


 


44
















 


ARTICLE VII.


MISCELLANEOUS


 


Section 7.01.                             Amendments, etc.  No amendment or
waiver of any provision of any Loan Document to which the Borrower and its
subsidiaries are a party, nor any consent to any departure by the Borrower and
its subsidiaries therefrom, shall in any event be effective unless the same
shall be agreed or consented to by the Lender and the Borrower, and each such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.


 


Section 7.02.                             Notices, etc.  All notices and
other communications provided for under any Loan Document shall be in
writing  and mailed, faxed, or delivered
at the addresses set forth below, or at such other address as such party may
specify by written notice to the other parties hereto:


 


	
  If to the Borrower:

  	
  Heron Lake BioEnergy, LLC

  
	
   

  	
  91246 390th
  Avenue

  
	
   

  	
  P.O. Box 198

  
	
   

  	
  Heron Lake, MN 56137-0198

  
	
   

  	
  Telephone:  (507) 793-0077

  

  
	
   

  	
  Fax: (507) 793-0078

  
	
   

  	
  Attention:  President

  
	
   

  	
   

  
	
  With a copy to:

  	
  Lindquist & Vennum P.L.L.P.

  
	
   

  	
  4200 IDS Center

  
	
   

  	
  80 South Eighth Street

  
	
   

  	
  Minneapolis, MN 55402-2205

  
	
   

  	
  Telephone: (612) 371-3211

  
	
   

  	
  Fax:  (612) 371-3207

  
	
   

  	
  Attn. Michael Weaver

  
	
   

  	
   

  
	
  If to the Lender:

  	
  AgStar Financial Services, PCA

  

  
	
   

  	
  1921 Premier Drive

  

  
	
   

  	
  P.O. Box 4249

  

  
	
   

  	
  Mankato, MN 56002-4249

  

  
	
   

  	
  Telephone: (507) 386-4242

  

  
	
   

  	
  Facsimile: (507) 344-5088

  

  
	
   

  	
  Attention: Mark Schmidt

  
	
   

  	
   

  
	
  With copy to:

  	
  Phillip L. Kunkel

  
	
   

  	
  Gray Plant Mooty

  
	
   

  	
  1010 West St. Germain,
  Suite 600

  
	
   

  	
  St. Cloud, MN 56301

  
	
   

  	
  Facsimile: (320) 252-4482

  



 


All such notices and communications shall have been duly given and
shall be effective:  (a) when
delivered; (b) when transmitted via facsimile to the number set forth
above; (c) the Business Day 


 


45

















 


following the day on which the same has been delivered prepaid (or
pursuant to an invoice arrangement) to a reputable national overnight air
courier service; or (d) the third Business Day following the day on which
the same is sent by certified or registered mail, postage prepaid.   Any confirmation sent by the Lender to the
Borrower of any borrowing under this Agreement shall, in the absence of
manifest error, be conclusive and binding for all purposes


 


Section 7.03.                             No
Waiver; Remedies.  No failure
on the part of the Lender to exercise, and no delay in exercising, any right
under any Loan Document shall operate as a waiver thereof; nor shall any single
or partial exercise of any right under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right.  The remedies provided in the Loan Documents
are cumulative and not exclusive of any remedies provided by law.


 


Section 7.04.                             Costs,
Expenses and Taxes.


 


(a)                                  The Borrower
agrees to pay on demand all costs and expenses in connection with the preparation,
execution, delivery, filing, recording and administration of the Loan Documents
and the other documents to be delivered under the Loan Documents, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Lender (who may be in-house counsel), and local counsel who may be
retained by said counsel, with respect thereto and with respect to advising the
Lender as to its respective rights and responsibilities under the Loan
Documents, and all costs and expenses (including reasonable counsel fees and
expenses) for the Lender in connection with the filing of the Financing
Statements and the enforcement of the Loan Documents and the other documents to
be delivered under the Loan Documents, including, without limitation, in the
context of any bankruptcy proceedings. 
In addition, the Borrower agrees to pay on demand the expenses described
in Section 5.01(b).  In addition,
the Borrower shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing and
recording of the Loan Documents and the other documents to be delivered under
the Loan Documents, and agrees to save the Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees.


 


(b)                                 If, due to
payments made by the Borrower pursuant to Section 2.09 or due to
acceleration of the maturity of the Advances pursuant to Section 6.01 or
due to any other reason, the Lender receives payments of principal of any Loan
other than on the last day of an Interest Period relating thereto, the Borrower
shall pay to the Lender on demand any amounts required to compensate the Lender
for any additional losses, costs or expenses which it may incur as a result of
such payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Lender to fund or maintain
such Loan.


 


Section 7.05.                             Right
of Set-off.  The Lender
is hereby authorized at any time and from time to time after an Event of
Default, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by the Lender to or for the
credit or the account of the Borrower and each of its subsidiaries against any
and all of the Loan Obligations, irrespective of whether or not the Lender
shall have made any demand under such Loan Document and although deposits,
indebtedness 


 


46

















 


or such obligations may be unmatured or contingent.  The Lender agrees promptly to notify the Borrower
after any such set-off and application, provided that the failure to give such
notice shall not affect the validity of such set-off and application.  The rights of the Lender under this Section are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Lender may have.


 


Section 7.06.                             Severability
of Provisions.  Any
provision of this Agreement or of any other Loan Document which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or thereof or affecting the
validity or unenforceability of such provision in any other jurisdiction.


 


Section 7.07.                             Binding
Effect; Successors and Assigns; Participations.


 


(a)                                  This Agreement
shall be binding upon and inure to the benefit of the Borrower, the Lender and
their respective successors and assigns, except that the Borrower shall not
have the right to assign or otherwise transfer its rights hereunder or any
interest herein without the prior written consent of the Lenders.  Upon the request of Borrower, Lender shall
provide copies of all invoices for costs and expenses to be reimbursed by
Borrower under this Agreement or under any of the Loan Documents.


 


(b)                                 Borrower agrees
and consents to Lender’s sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers, whether related
or unrelated to Lender.  Lender may provide,
without any limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about Borrower or
about any other matter relating to the Loans, and Borrower hereby waives any
rights to privacy it may have with respect to such matters; provided, however,
that any information received by any such purchaser or potential purchaser
under this provision which concerns the personal, financial or other affairs of
the Borrower shall be received and kept by the purchaser or potential purchaser
in full confidence and will not be revealed to any other persons, firms or
organizations nor used for any purpose whatsoever other than for determining
whether or not to participate in the Loans and in accord with the rights of
Lender if a participation interest is acquired. 
Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such  participation interest.  Borrower also agrees that the purchasers of
any such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests.  Borrower further waives all
rights of offset or counterclaim that it may have now or later against Lender
or against any purchaser of such a participation interest arising out of or by
virtue of the participation and unconditionally agrees that either Lender or
such purchaser may enforce Borrower’s obligation under the Loans irrespective
of the failure or insolvency of any holder of any interests in the Loans.  Borrower further agrees that the purchaser of
any such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.


 


47

















 


Section 7.08.                             Consent
to Jurisdiction.


 


(a)                                  The Borrower
hereby irrevocably submits to the jurisdiction of any Minnesota state court or
federal court over any action or proceeding arising out of or relating to this
Agreement, the Note and any instrument, agreement or document related hereto or
thereto, and the Borrower hereby irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in such Minnesota
state court or federal court.  The
Borrower hereby irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such action or
proceeding.  The Borrower irrevocably
consents to the service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding by the mailing of
copies of such process to Borrower at its address specified in Section 7.02.  The Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.


 


(b)                                 Nothing in this
Section 7.08 shall affect the right of the Lender to serve legal process
in any other manner permitted by law or affect the right of the Lender to bring
any action or proceeding against the Borrower or its property in the courts of
other jurisdictions.


 


Section 7.09.                             Governing
Law.  THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF MINNESOTA.


 


Section 7.10.                             Execution
in Counterparts.  This
Agreement may be executed in any number of counterparts and on telecopy
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute but one and the same
agreement.


 


Section 7.11.                             Survival.  All covenants, agreements, representations
and warranties made by the Borrower in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Advances and issuance of
any Letters of Credit, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that Lender may have had notice or
knowledge of any Event of Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as any Loan Obligations are outstanding and unpaid and so long
as the Lender has any unexpired commitments under this Agreement or the Loan
Documents.  The expense reimbursement,
additional cost, capital adequacy and indemnification provisions of this
Agreement shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the Loan
Obligations or the termination of this Agreement or any provision hereof.


 


Section 7.12.                             WAIVER
OF JURY TRIAL.  THE
BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY LOAN 


 


48

















 


DOCUMENT TO WHICH IT IS A PARTY OR ANY INSTRUMENT OR DOCUMENT DELIVERED
THEREUNDER.


 


Section 7.13.                             Entire
Agreement.  THIS
AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY
THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES THERETO.


 


The execution and delivery of this Third Amended and Restated Master
Loan Agreement shall supersede and replace in its entirety the Amended and
Restated Master Loan Agreement which shall thereafter be of no force or effect.


 


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers and duly authorized, as of the date first
above written.


 


BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS THIRD
AMENDED AND RESTATED MASTER LOAN AGREEMENT, AND BORROWER AGREES TO ITS
TERMS.  THIS AGREEMENT IS DATED AS OF THE
DATE FIRST ABOVE STATED.


 


[SIGNATURE PAGE ON FOLLOWING
PAGE]


 


49

















 


SIGNATURE PAGE TO:


FOURTH AMENDED AND RESTATED MASTER LOAN AGREEMENT


by and among


HERON LAKE BIOENERGY, LLC


and


AGSTAR FINANCIAL SERVICES, PCA


DATED: 
October 1, 2007


 


BORROWER:


 


HERON LAKE BIOENERGY, LLC, a Minnesota limited liability company


 


 


	
  /s/ Robert J. Ferguson

  	
   

  
	
  By Robert J. Ferguson

  	
   

  
	
     Its President

  	
   

  



 


LENDER:


 


AGSTAR FINANCIAL SERVICES, PCA


a United States instrumentality


 


 


	
  /s/ Mark Schmidt

  	
   

  
	
  By Mark Schmidt

  	
   

  
	
     Its Vice President

  	
   

  



 


50

















 


EXHIBIT A


COMPLIANCE
CERTIFICATE


 


TO:                            AGSTAR
FINANCIAL SERVICES, PCA (the “Lender”)


 


Pursuant to that certain Fourth Amended and
Restated Master Loan Agreement dated October 1, 2007, by and between HERON
LAKE BIOENERGY, LLC, a Minnesota limited liability company (the “Borrower”),
and the Lender, and any amendments thereto and extensions thereof (the “Loan
Agreement”), the undersigned hereby represents, warrants and certifies to the
Lender as follows:


 


1.                                       The financial
statement(s) attached hereto are complete and correct in all material
respects and fairly present the financial condition of the Borrower as of the
date of said financial statement(s) and the result of its business
operations for the period covered thereby;


 


2.                                       Repeats and
reaffirms to the Lender each and all of the representations and warranties made
by the Borrower in the Loan Agreement and the agreements referred to therein or
related thereto, and represents and warrants to the Lender that each and all of
said warranties and representations are true and correct as of the date hereof
except as set forth in Schedule 1 to this Compliance Certificate;


 


3.                                       No Event of
Default (as that term is defined in the Loan Agreement), and no event which
with the giving of notice or the passage of time or both would constitute an
Event of Default, has occurred and is continuing as of the date hereof;


 


4.                                       All the
calculations set forth below are made pursuant to the terms of the Loan
Agreement and are true and accurate as of the date of the attached financial
statements:


 


	
  1.

  	
  Section 5.01(d) – Working Capital.

  	
   

  	
   

  	
   

  
	
   

  	
  (tested annually)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a)

  	
  Current Assets

  	
   

  	
  $

  	
                         

  	
   

  
	
  (b)

  	
  Available Commitment on the Term Revolving Loan

  	
   

  	
  $

  	
                         

  	
   

  
	
  (c)

  	
  Total Current Assets (line (a) plus line (b)

  	
   

  	
  $

  	
                         

  	
   

  
	
  (d)

  	
  Current Liabilities

  	
   

  	
  $

  	
                         

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Line (c) less line (d)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
  Yes o

  	
   

  	
  No o

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Section 5.01(e) – Tangible Net Worth.

  	
   

  	
   

  	
   

  
	
   

  	
  (tested annually)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a)

  	
  Required Tangible Net Worth

  	
   

  	
  $

  	
  39,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
  Actual Tangible Net Worth

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (1) Total Assets

  	
   

  	
  $

  	
                         

  	
   

  
	
   

  	
  (2) Less Intangible Assets (per definition)

  	
   

  	
  $

  	
                         

  	
   

  
	
   

  	
  (3) Total Tangible Assets

  	
   

  	
  $

  	
                         

  	
   

  
							



 


51

















 


 


 


	
   

  	
  (4)  Total Liabilities

  	
   

  	
  $

  	
                         

  	
   

  
	
   

  	
  (5)  Tangible Net Worth

  	
   

  	
  $

  	
                         

  	
   

  
	
   

  	
  (line (4) minus line (5))

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
  Yes o

  	
  No o

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Section 5.01(f) – Owner Equity Ratio

  	
   

  	
   

  	
   

  
	
   

  	
  (tested annually)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a)

  	
  Tangible Net Worth

  	
   

  	
  $

  	
                         

  	
   

  
	
  (b)

  	
  Total Assets

  	
   

  	
  $

  	
                         

  	
   

  
	
  (c)

  	
  Owner Equity Ratio

  	
   

  	
   

  	
   

  
	
   

  	
  (ratio of line (b) to (c))

  	
   

  	
              
  to 1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Required Ratio of 0.50 to 1.00

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
  Yes o

  	
  No o

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Section 5.01(g) – Fixed Charge Ratio

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a)

  	
  EBITDA

  	
   

  	
  $

  	
                         

  	
   

  
	
  (b)

  	
  Extraordinary Items

  	
   

  	
  $

  	
                         

  	
   

  
	
  (c)

  	
  Numerator (sum of lines (a) and (b))

  	
   

  	
  $

  	
                         

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (d)

  	
  Current Portion of Long Term Debt

  	
   

  	
  $

  	
                         

  	
   

  
	
  (e)

  	
  Interest Expense

  	
   

  	
  $

  	
                         

  	
   

  
	
  (f)

  	
  Dividends

  	
   

  	
  $

  	
                         

  	
   

  
	
  (g)

  	
  Tax Distributions

  	
   

  	
  $

  	
                         

  	
   

  
	
  (h)

  	
  Maintenance Capital Expenditures

  	
   

  	
  $

  	
                         

  	
   

  
	
  (i)

  	
  Denominator (sum of lines (d) through (h))

  	
   

  	
  $

  	
                         

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ratio of line (c) to (i)

  	
   

  	
              
  to 1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Required Ratio of 1.20 to 1.00

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
  Yes o

  	
  No o

  	
   

  
									



 


IN
WITNESS WHEREOF, the undersigned has signed and delivered this Certificate to
the Lender as of the       day of             ,
     .


 


BORROWER:


 


HERON LAKE BIOENERGY, LLC


a Minnesota limited liability company


 


 


	
  By

  	
   

  	
   

  
	
   

  	
  Its

  	
   

  	
   

  
						



 


52

















 


EXHIBIT B


PROJECT SOURCE AND USE STATEMENT


 


	
   

  	
   

  	
  Revised Budget

  	
   

  	
  Budget

  	
   

  	
  Revised Budget

  	
   

  
	
   

  	
   

  	
  December 13, 2006

  	
   

  	
  Changes

  	
   

  	
  5/1/2007

  	
   

  
	
  Sources:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Senior Debt - Construction Loan

  	
   

  	
  64,583,000

  	
   

  	
  —

  	
   

  	
  64,583,000

  	
   

  
	
  Senior Debt - Elevator Revolver

  	
   

  	
  5,500,000

  	
   

  	
  2,000,000

  	
   

  	
  7,500,000

  	
   

  
	
  Member Equity

  	
   

  	
  48,767,000

  	
   

  	
   

  	
   

  	
  48,767,000

  	
   

  
	
  Member Equity - Land Exchange

  	
   

  	
  500,000

  	
   

  	
   

  	
   

  	
  500,000

  	
   

  
	
  Member Equity - Board Warrants

  	
   

  	
  160,000

  	
   

  	
  20,000

  	
   

  	
  180,000

  	
   

  
	
  Grants - USDA

  	
   

  	
  250,000

  	
   

  	
   

  	
   

  	
  250,000

  	
   

  
	
  Grants - Jackson County

  	
   

  	
  100,000

  	
   

  	
   

  	
   

  	
  100,000

  	
   

  
	
  Interest

  	
   

  	
  1,300,000

  	
   

  	
  —

  	
   

  	
  1,300,000

  	
   

  
	
  Water bond, other

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  USDA / Alliant Energy - Loan

  	
   

  	
  740,000

  	
   

  	
  —

  	
   

  	
  740,000

  	
   

  
	
  TOTAL:

  	
   

  	
  121,900,000

  	
   

  	
  2,020,000

  	
   

  	
  123,920,000

  	
   

  
	
  Uses:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant Construction Costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant design build contract

  	
   

  	
  81,286,872

  	
   

  	
  —

  	
   

  	
  81,286,872

  	
   

  
	
  Change Order Loadouts

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  
	
  Unit train loadout (75) ethanol

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  
	
  Unit train loadout (75) DDGS

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  
	
  Elevator facility

  	
   

  	
  2,600,000

  	
   

  	
   

  	
   

  	
  2,600,000

  	
   

  
	
  Scale upgrade

  	
   

  	
  35,000

  	
   

  	
   

  	
   

  	
  35,000

  	
   

  
	
  Administration building

  	
   

  	
  1,200,000

  	
   

  	
  —

  	
   

  	
  1,200,000

  	
   

  
	
  Scale House

  	
   

  	
  130,000

  	
   

  	
  —

  	
   

  	
  130,000

  	
   

  
	
  Office Equipment

  	
   

  	
  135,000

  	
   

  	
  —

  	
   

  	
  135,000

  	
   

  
	
  Computers, Software, Network

  	
   

  	
  65,000

  	
   

  	
  —

  	
   

  	
  65,000

  	
   

  
	
  Construction Performance Bond

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Construction Insurance Builders Risk

  	
   

  	
  205,000

  	
   

  	
  —

  	
   

  	
  205,000

  	
   

  
	
  Capitalized Interest

  	
   

  	
  1,350,000

  	
   

  	
  —

  	
   

  	
  1,350,000

  	
   

  
	
  Construction Contingency

  	
   

  	
  1,618,299

  	
   

  	
  —

  	
   

  	
  1,618,299

  	
   

  
	
  TOTAL:

  	
   

  	
  88,625,171

  	
   

  	
  —

  	
   

  	
  88,625,171

  	
   

  



 


53

















 


	
  Site Costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Land Acquisition - 201 acres

  	
   

  	
  2,130,000

  	
   

  	
  —

  	
   

  	
  2,130,000

  	
   

  
	
  Site Engineering (survey & borings)

  	
   

  	
  70,000

  	
   

  	
  —

  	
   

  	
  70,000

  	
   

  
	
  Site fencing

  	
   

  	
  25,000

  	
   

  	
  —

  	
   

  	
  25,000

  	
   

  
	
  Site maintenance

  	
   

  	
  25,000

  	
   

  	
  —

  	
   

  	
  25,000

  	
   

  
	
  Site improvements (includes phase 1)

  	
   

  	
  3,350,000

  	
   

  	
  —

  	
   

  	
  3,350,000

  	
   

  
	
  Soil Stabilization

  	
   

  	
  1,000,000

  	
   

  	
  —

  	
   

  	
  1,000,000

  	
   

  
	
  Electrical Sub Station

  	
   

  	
  1,205,000

  	
   

  	
  —

  	
   

  	
  1,205,000

  	
   

  
	
  City water & sewer

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Highway road safety upgrade

  	
   

  	
  650,000

  	
   

  	
  —

  	
   

  	
  650,000

  	
   

  
	
  Hard Surface Roads

  	
   

  	
  800,000

  	
   

  	
  —

  	
   

  	
  800,000

  	
   

  
	
  Site utilities (includes phase II)

  	
   

  	
  50,000

  	
   

  	
  —

  	
   

  	
  50,000

  	
   

  
	
  Liquid propane fuel storage

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  100,000

  	
   

  
	
  Permitting

  	
   

  	
  200,000

  	
   

  	
  —

  	
   

  	
  200,000

  	
   

  
	
  Construction manager fees

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  TOTAL:

  	
   

  	
  9,605,000

  	
   

  	
  —

  	
   

  	
  9,605,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Railroad

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mainline Rail Switch

  	
   

  	
  300,000

  	
   

  	
  —

  	
   

  	
  300,000

  	
   

  
	
  Yard rail switches

  	
   

  	
  110,000

  	
   

  	
  —

  	
   

  	
  110,000

  	
   

  
	
  Rail track - Loop

  	
   

  	
  4,385,548

  	
   

  	
  —

  	
   

  	
  4,385,548

  	
   

  
	
  Rail track - additional

  	
   

  	
  400,000

  	
   

  	
  —

  	
   

  	
  400,000

  	
   

  
	
  Coal track contingency

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Railroad contingency

  	
   

  	
  425,781

  	
   

  	
  —

  	
   

  	
  425,781

  	
   

  
	
  TOTAL:

  	
   

  	
  5,621,329

  	
   

  	
  —

  	
   

  	
  5,621,329

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fire protection/Water Supply

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fire protection loop

  	
   

  	
  410,000

  	
   

  	
  —

  	
   

  	
  410,000

  	
   

  
	
  Fire water tank

  	
   

  	
  323,351

  	
   

  	
  —

  	
   

  	
  323,351

  	
   

  
	
  Fire water pumps

  	
   

  	
  125,000

  	
   

  	
  —

  	
   

  	
  125,000

  	
   

  



 


54

















 


	
  Wells or water access

  	
   

  	
  50,000

  	
   

  	
  —

  	
   

  	
  50,000

  	
   

  
	
  Water system pumps

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  
	
  Drain field & septic tank

  	
   

  	
  90,000

  	
   

  	
  —

  	
   

  	
  90,000

  	
   

  
	
  Reverse osmosis water system

  	
   

  	
  431,649

  	
   

  	
  —

  	
   

  	
  431,649

  	
   

  
	
  TOTAL:

  	
   

  	
  1,430,000

  	
   

  	
  —

  	
   

  	
  1,430,000

  	
   

  
	
  Rolling Stock

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Used front end loader - Coal

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Used front end loader - DDGS

  	
   

  	
  75,000

  	
   

  	
  —

  	
   

  	
  75,000

  	
   

  
	
  New skid loader

  	
   

  	
  35,000

  	
   

  	
  —

  	
   

  	
  35,000

  	
   

  
	
  Used fork lift

  	
   

  	
  30,000

  	
   

  	
  —

  	
   

  	
  30,000

  	
   

  
	
  Used scissor lift - 30’

  	
   

  	
  10,000

  	
   

  	
  —

  	
   

  	
  10,000

  	
   

  
	
  Rail engine

  	
   

  	
  290,000

  	
   

  	
  —

  	
   

  	
  290,000

  	
   

  
	
  Used pick-up

  	
   

  	
  20,000

  	
   

  	
  —

  	
   

  	
  20,000

  	
   

  
	
  TOTAL:

  	
   

  	
  460,000

  	
   

  	
  —

  	
   

  	
  460,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Financing Costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Participation & Loan Origination Fees

  	
   

  	
  575,000

  	
   

  	
  —

  	
   

  	
  575,000

  	
   

  
	
  Bank commitment fees

  	
   

  	
  80,000

  	
   

  	
  —

  	
   

  	
  80,000

  	
   

  
	
  Filing fees

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Bank service fees

  	
   

  	
  25,000

  	
   

  	
  —

  	
   

  	
  25,000

  	
   

  
	
  Construction inspectors - bank required

  	
   

  	
  40,000

  	
   

  	
  —

  	
   

  	
  40,000

  	
   

  
	
  Bank Attorney Fees

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  100,000

  	
   

  
	
  Title Insurance

  	
   

  	
  60,000

  	
   

  	
  —

  	
   

  	
  60,000

  	
   

  
	
  Disbursement Agent Fee

  	
   

  	
  15,000

  	
   

  	
  —

  	
   

  	
  15,000

  	
   

  
	
  Appraisal Cost

  	
   

  	
  22,500

  	
   

  	
  —

  	
   

  	
  22,500

  	
   

  
	
  TOTAL:

  	
   

  	
  917,500

  	
   

  	
  —

  	
   

  	
  917,500

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pre-production period costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Startup costs

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Administration labor

  	
   

  	
  120,000

  	
   

  	
  —

  	
   

  	
  120,000

  	
   

  



 


55

















 


	
  Production labor

  	
   

  	
  200,000

  	
   

  	
  —

  	
   

  	
  200,000

  	
   

  
	
  Utilities

  	
   

  	
  200,000

  	
   

  	
  —

  	
   

  	
  200,000

  	
   

  
	
  Training costs

  	
   

  	
  30,000

  	
   

  	
  —

  	
   

  	
  30,000

  	
   

  
	
  Operating costs

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  100,000

  	
   

  
	
  TOTAL:

  	
   

  	
  650,000

  	
   

  	
  —

  	
   

  	
  650,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventory - Working Capital

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventory - working capital

  	
   

  	
  1,000,000

  	
   

  	
  —

  	
   

  	
  1,020,000

  	
   

  
	
  Inventory - working capital elevator

  	
   

  	
  5,625,000

  	
   

  	
  1,875,000

  	
   

  	
  7,500,000

  	
   

  
	
  Inventory - Corn

  	
   

  	
  1,200,000

  	
   

  	
  125,000

  	
   

  	
  1,325,000

  	
   

  
	
  Inventory - spare parts

  	
   

  	
  200,000

  	
   

  	
  —

  	
   

  	
  200,000

  	
   

  
	
  Inventory - ethanol

  	
   

  	
  2,500,000

  	
   

  	
  —

  	
   

  	
  2,500,000

  	
   

  
	
  Denaturant, chem., yeasts, enzymes

  	
   

  	
  250,000

  	
   

  	
  —

  	
   

  	
  250,000

  	
   

  
	
  Inventory - corn hedged

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Inventory - DDGS

  	
   

  	
  600,000

  	
   

  	
  —

  	
   

  	
  600,000

  	
   

  
	
  Inventory - Coal

  	
   

  	
  30,000

  	
   

  	
  —

  	
   

  	
  30,000

  	
   

  
	
  Inventory - propane

  	
   

  	
  30,000

  	
   

  	
  —

  	
   

  	
  30,000

  	
   

  
	
  TOTAL:

  	
   

  	
  11,435,000

  	
   

  	
  2,000,000

  	
   

  	
  13,455,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Organizational Costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  401k expense

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Accounting

  	
   

  	
  267,000

  	
   

  	
  —

  	
   

  	
  267,000

  	
   

  
	
  Advertising

  	
   

  	
  5,000

  	
   

  	
  —

  	
   

  	
  5,000

  	
   

  
	
  Bank charges

  	
   

  	
  2,000

  	
   

  	
  —

  	
   

  	
  2,000

  	
   

  
	
  Consulting fees

  	
   

  	
  475,000

  	
   

  	
  —

  	
   

  	
  475,000

  	
   

  
	
  Depreciation

  	
   

  	
  25,000

  	
   

  	
  —

  	
   

  	
  25,000

  	
   

  
	
  Directors expense

  	
   

  	
  450,000

  	
   

  	
  —

  	
   

  	
  450,000

  	
   

  
	
  Directors travel expense

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  100,000

  	
   

  
	
  Donations

  	
   

  	
  2,500

  	
   

  	
  —

  	
   

  	
  2,500

  	
   

  



 


56

















 


	
  Dues

  	
   

  	
  8,500

  	
   

  	
  —

  	
   

  	
  8,500

  	
   

  
	
  Insurance - D&O

  	
   

  	
  175,000

  	
   

  	
  —

  	
   

  	
  175,000

  	
   

  
	
  Insurance - operations

  	
   

  	
  30,000

  	
   

  	
  —

  	
   

  	
  30,000

  	
   

  
	
  Internet service

  	
   

  	
  4,000

  	
   

  	
  —

  	
   

  	
  4,000

  	
   

  
	
  Legal

  	
   

  	
  700,000

  	
   

  	
  —

  	
   

  	
  700,000

  	
   

  
	
  Membership fees

  	
   

  	
  2,000

  	
   

  	
  —

  	
   

  	
  2,000

  	
   

  
	
  Membership meetings

  	
   

  	
  20,000

  	
   

  	
  —

  	
   

  	
  20,000

  	
   

  
	
  Miscellaneous

  	
   

  	
  20,000

  	
   

  	
  —

  	
   

  	
  20,000

  	
   

  
	
  Office equipment

  	
   

  	
  20,000

  	
   

  	
  —

  	
   

  	
  20,000

  	
   

  
	
  Office expense

  	
   

  	
  50,000

  	
   

  	
  —

  	
   

  	
  50,000

  	
   

  
	
  Office labor

  	
   

  	
  250,000

  	
   

  	
  —

  	
   

  	
  250,000

  	
   

  
	
  Payroll tax expense

  	
   

  	
  25,000

  	
   

  	
  —

  	
   

  	
  25,000

  	
   

  
	
  Postage

  	
   

  	
  30,000

  	
   

  	
  —

  	
   

  	
  30,000

  	
   

  
	
  Printing

  	
   

  	
  35,000

  	
   

  	
  —

  	
   

  	
  35,000

  	
   

  
	
  Telephone

  	
   

  	
  30,000

  	
   

  	
  —

  	
   

  	
  30,000

  	
   

  
	
  Cost of raising capital

  	
   

  	
  430,000

  	
   

  	
  —

  	
   

  	
  430,000

  	
   

  
	
  Office Utilities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  TOTAL:

  	
   

  	
  3,156,000

  	
   

  	
  —

  	
   

  	
  3,156,000

  	
   

  
	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL
  USES:

  	
   

  	
  121,900,000

  	
   

  	
  4,020,000

  	
   

  	
  123,920,000

  	
   

  



 


57
















 


EXHIBIT C


FORM OF
OPINION LETTER


Date:  October 1, 2007 [Draft]


 


AgStar
Financial Services, PCA


1921
Premier Drive


P.O. Box
4249


Mankato,
MN56002-4249


 


 


Re:                             Fourth Amended Master Loan Agreement Dated October 1,
2007, by and between Heron Lake BioEnergy, LLC and AgStar Financial Services,
PCA


 


Ladies and Gentlemen:


 


We have acted as counsel to Heron
Lake BioEnergy, LLC, a Minnesota limited liability company (the “Company”), in
connection with the negotiation of the Fourth Amended and Restated Master Loan
Agreement (the “Loan Agreement”) by and between the Company and Agstar
Financial Services, PCA (the “Lender” or “you”) dated as of the date hereof and
the consummation of the transactions described therein.  This letter is furnished to satisfy a
condition set forth in Section 3.01(r) of the Loan Agreement.  All capitalized terms used in this letter
that are not otherwise defined herein have the meanings assigned to them in the
Loan Agreement unless the context requires otherwise.


 


In our capacity as counsel to the
Company, and for purposes of this opinion, we have examined the following
documents:


 


(i)                                     the Loan Agreement;


 


(ii)                                  the Fourth Amended and Restated Second
Supplement;


 


(iii)                               the Third Supplement to the Loan Agreement;


 


(iv)                              the Fourth Supplement to the Loan Agreement;


 


(v)                                 the Second Amended and Restated Revolving
Note;


 


(vi)                              the Term Note;


 


(vii)                           the Revolving Term Note;


 


(viii)                        the Revolving Line of Credit Note;


 


(ix)                                the Security Agreement;


 


(x)                                   the Mortgage;


 


58





















 


(xi)                                the Disbursing Agreement;


 


(ix)                                the Articles of Organization and Member
Control Agreement, as amended, of the Company;


 


(x)                                   the records of proceedings and actions of the
members and Board of Governors of the Company with respect to the transactions
between you and the Company contemplated by the Loan Agreement;


 


(xi)                                such other documents, agreements and
materials as we have deemed necessary and appropriate to render the opinions
set forth in this letter, subject to the limitations, assumptions and
qualifications noted below.


 


The documents listed as items (i) through
(x) above are dated as of the first date written above and are
collectively referred to herein as the “Loan Documents.”  In addition, we have examined and relied upon
representations and warranties as to matters of fact (other than facts
constituting conclusions of law) contained in and made pursuant to the Loan
Documents.


 


In addition, we have examined
such other resolutions, documents, certificates and records and have made such
investigations of law and fact as we have deemed necessary or appropriate to
enable us to render the opinions expressed herein.


 


In reaching the opinions set
forth below, we have assumed, and have not independently verified, the
genuineness of all signatures on all documents, the legal capacity and
competency for all purposes relevant hereto of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
the authentic originals of all documents submitted to us as copies, the
correctness, completeness and accuracy of all facts set forth in all
representations, warranties and certificates referred to or identified in this
opinion, and that there are no documents, agreements or understandings to which
the Lender is a party between the Lender, on the one hand, and the Company on
the other hand, other than the Loan Documents, which would have an effect on
the opinions set forth below.  In
examining documents executed by parties other than the Company, we have assumed
that such parties had the requisite power, right and authority (corporate or
otherwise) to execute, deliver and perform all of their respective obligations
thereunder and have also assumed the due authorization by all requisite
corporate action and execution and delivery of such documents by such parties,
and the validity, legality and binding effect of those documents on those
parties.  As to questions of fact
material to our opinions, we have relied upon the representations and
warranties made in the Loan Documents and upon certificates of officers or
other representatives of the Company and of public officials (“Certificates”).
We have not independently or through third parties verified such
representations and warranties or Certificates, or made any independent
investigation as to the existence of agreements, instruments or other
documents, orders, judgments or decrees by which the Company or any of its
properties or assets may be bound.


 


In basing the opinions and other
matters set forth herein on phrases such as “best of our knowledge,” “our
knowledge,” or “known to us,” such phrases signify that, in the course of our
representation of the Company in matters with respect to which we have been
engaged by the 


 


59





















 


Company to give substantive attention as counsel, no
information has come to our attention that would give us actual knowledge that
any such opinion or other matters are not accurate or that any of the foregoing
Certificates and other matters on which we have relied are not accurate and
complete.  Except as otherwise stated
herein, we have undertaken no independent investigation or verification of such
matters.  The phrases “best of our
knowledge,” “our knowledge,” “known to us” and similar language used herein are
intended to be limited to the knowledge of the lawyers currently employed by
our firm who have performed substantive legal services related to the Loan
Documents and have specific knowledge of the substance of this opinion.


 


Based on our review of the
foregoing, and subject to the assumptions, qualifications and limitations set
forth herein, it is our opinion that:


 


1.                                       The Company is a limited liability company
duly organized, validly existing, and in good standing under the laws of the State
of Minnesota.


 


2.                                       The Company has the power to enter into and
perform its obligations under the Loan Documents.


 


3.                                       The Company has taken all necessary company
action to authorize the execution, delivery, and performance by the Company of
the Loan Documents, and the consummation by the Company of the transactions set
forth in the Loan Documents.


 


4.                                       The Loan Documents have been duly and validly
executed and delivered by the Company and constitute legal, valid, binding, and
enforceable obligations of the Company.


 


5.                                       The execution and delivery by the Company of
the Loan Documents do not, and the consummation by the Company of the
transactions contemplated by the Loan Documents and the compliance by the
Company with the provisions of the Loan Documents do not, (a) conflict
with or result in a breach of any provision of the Company’s Articles of
Organization, or Member Control Agreement, (b) to our knowledge, conflict
with or result in a material violation of any applicable state or federal law
or regulation, (c) to our knowledge, conflict with any order, judgment, or
decree to which the Company are a party or subject or by which any of its
properties or assets are bound, or (d) to our knowledge, conflict with any
Material Contract to which the Company is a party or by which the Company or
any of its properties or assets are bound.


 


6.                                       To our knowledge, except as expressly
disclosed in the Loan Documents, there are no actions, suits or proceedings
pending or threatened in writing against or affecting the Company before any
court or arbitrator or by or before any administrative agency or government
authority, which, if adversely determined, would constitute an material adverse
effect on the Company.  We do, however,
call your attention to the Permit Litigation to which the Company is a party,
the outstanding licenses, permits and consents per the schedule provided under Section 3.02(c) to
the Loan Agreement, and the claims and action described on Schedule 4.01(f) to
the Loan Agreement.  We make no opinions
herein with respect to the outcome or impact of those matters.


 


60





















 


The foregoing opinions are subject to the following
qualifications (in addition to the qualifications, exceptions, limitations and
assumptions specified above):


 


A.                                   Our opinions as they relate to the legality,
validity, binding effect and/or enforceability of the Loan Documents are
subject to the limitations that might result from bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent or preferential transfer,
fraudulent conveyance, and other state and federal laws relating to or
affecting the rights or remedies of creditors generally, now or hereafter, in
effect.


 


B.                                     Our opinions as they relate to the legality,
validity, binding effect and/or enforceability of the Loan Documents are
subject to the qualification that the availability of the remedies of specific
performance or injunctive relief, or any other equitable remedy, is subject to
the discretion of the court before which a proceeding therefor may be brought,
equitable defenses and the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), including without limitation, concepts of materiality,
reasonableness, good faith, fair dealing and other similar doctrines affecting
the enforcement of agreements generally.


 


C.                                     Except as expressly stated herein, no opinion
is expressed or implied as to the truth, accuracy or completeness of any of the
representations, warranties or other statements of the Company or any other
person contained in any of the Loan Documents or in any exhibit, schedule or
attachment thereto.


 


D.                                    We express or imply no opinion as to what
actions the parties to the Loan Documents are required to or may take or fail
to take on or after the date hereof which, if taken or not taken, would affect
or impair the legality, validity, binding effect and/or enforceability of the
Loan Documents or the rights and remedies of the parties thereunder.


 


E.                                      With respect to the legality, validity,
binding effect and enforceability of the remedies available to the Lender under
the Uniform Commercial Code in force in the State of Minnesota (“UCC”), we have
assumed that the Lender will enforce such remedies in accordance with the UCC
and under such circumstances and in a manner in which it is commercially
reasonable to do so.  In addition,
because a claimant bears the burden of proof required to support its claim, our
opinion assumes that you will undertake the effort and expense necessary to
present your claims in the prosecution of any remedy accorded you under the
Loan Documents.


 


F.                                      We express or imply no opinion as to the
creation, attachment, perfection or priority of any security interest, mortgage
or other lien which the Lender may claim in any real or personal property of
the Company under any of the Loan Documents or otherwise.


 


G.                                     Our opinions as they relate to the legality,
validity, binding effect and/or enforceability of the Loan Documents are
subject to the limitations arising from state and federal court decisions
involving statutes, public policy and/or principles of equity holding that (i) purported
waivers of notice, remedies (or the delay in, omission of, or enforcement
thereof) or the benefits of 


 


61





















 


statutory provisions or constitutional or common law
rights and broadly or vaguely stated provisions waiving rights or waivers of
unknown future rights or duties imposed by law are or may be void or
unenforceable, (ii) under certain circumstances, provisions declaring that
the failure to exercise or delay in exercising rights or remedies will not
operate as a waiver of any such right or remedy are invalid, (iii) provisions
declaring that the documents may only be amended or waived in writing may be
unenforceable to the extent that an oral agreement or an implied agreement by
trade practice or course of conduct has been created modifying one or more
provisions of the Loan Documents, (iv) the enforcement of public policy is
of a paramount public interest which may prohibit enforcement of certain
contractual provisions; (v) the indemnification and exculpation provisions
of the Loan Documents may be unenforceable to the extent that the enforcement
of such provisions is determined to be against public policy; and (vi) certain
other provisions in the Loan Documents, including, without limitation,
self-help provisions, provisions that purport to establish evidentiary
standards, provisions requiring the payment of a late payment or repayment
charge, fee, reinvestment charge, premium or penalty, however denominated, are
or may be unenforceable in whole or in part.


 


H.                                    Since it is necessary for the Lender to elect
its proper remedy in certain instances, no opinion is expressed or implied that
any cumulative remedy provision contained in any of the Loan Documents is valid
or enforceable.


 


I.                                         No opinion is expressed or implied as to the
legality, validity, binding effect or enforceability of (i) any power of
attorney granted to the Lender in any of the Loan Documents, or (ii) any
document, certificate, agreement or instrument executed or delivered by the
Lender pursuant thereto.


 


J.                                        Minnesota Statutes, Section 290.371,
subd. 4, provides that any corporation required to file a Notice of Business
Activities Report does not have a cause of action upon which it may bring suit
under Minnesota law unless the corporation has filed a Notice of Business
Activities Report and that the use of the courts of the State of Minnesota for
all contracts executed and all causes of action that arose before the end of
any period for which a corporation failed to file a required report is
precluded.  We note, however, that a
court may excuse the failure to file such a report under certain circumstances
described in the statute.  Insofar as the
foregoing opinion may relate to the legality, validity, binding effect and/or
enforceability of any agreement under Minnesota law or in a Minnesota court, we
have assumed that any party seeking to enforce the agreement has at all times
been, and will continue at all times to be, exempt from the requirement of
filing a Notice of Business Activities Report or, if not exempt, has duly
filed, and will continue to duly file, all Notice of Business Activities
Reports.


 


K.                                    In giving this opinion, we advise you that a
Minnesota court may not strictly enforce certain covenants contained in the
Loan Documents or allow acceleration of the maturity of the indebtedness
evidenced by the Notes if it concludes that such enforcement or acceleration
would be unreasonable under the then existing circumstances.  We do believe, however, that subject to the
limitations expressed elsewhere in this opinion, enforcement or acceleration
would be available if an Event of Default occurs as a result of a material
breach of a material covenant contained in the Loan Documents.


 


62





















 


L.                                      Certain rights, remedies, waivers and
indemnities contained in the Loan Documents, in addition to those specifically
enumerated above, may be limited or rendered ineffective by applicable
Minnesota laws or judicial decisions governing such provisions, but such laws
and judicial decisions do not render the Loan Documents invalid as a whole, and
there exist, in the Loan Documents or pursuant to applicable law, legally
adequate remedies for a realization of the principal benefits intended to be
provided by the Loan Documents.


 


In addition to the qualifications set forth above,
the opinions set forth herein are also subject to the following qualifications:


 


M.                                 We are members of the Bar of the State of
Minnesota.  The opinions expressed herein
are limited to matters of Minnesota and federal law.  We express no opinion with respect to the
laws of any other jurisdiction.  For
purposes of this opinion we have assumed that the internal laws (as opposed to
the choice of law rules) of the State of Minnesota and applicable federal law
would apply and have rendered our opinion on that basis.  To the extent that the law of another
jurisdiction applies, we have assumed that the law of that jurisdiction would
be the same as Minnesota law.  We render
no opinion as to the enforceability of any choice of law provision.


 


N.                                    We express no opinion with respect to title
to any property, nor do we express any opinion with respect to the existence of
encumbrances upon any property or the attachment, validity, perfection or
priority of any liens or security interests.


 


O.                                    Except as explicitly addressed in the
numbered opinions above, no opinion is expressed herein as to any of the topics
listed under Section 19 “Specific Legal Issues” of the Third-Party Legal
Opinion Report, published in 1991 by the Section of Business Law of the
American Bar Association.


 


This opinion is limited to the
specific legal issues addressed herein and no opinion is implied or may be
inferred beyond the matters expressly set forth herein.  Our opinion is rendered to you solely for
your benefit in connection with consummation of the transactions set forth in the
Loan Documents and may not be quoted in whole or in part, filed publicly or
delivered to, or relied upon by any other person without our prior written
consent.  Our opinion is based upon the
state of facts and the law existing and in effect on the date hereof, and we
assume no obligation to revise, supplement or update this opinion in any
respect at any time subsequent to the date hereof in order to account for any
change in the law (whether or not hereinafter enacted or adopted) or future
facts, events or circumstances affecting any of the transactions contemplated
by any of the Loan Documents.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  LINDQUIST & VENNUM P.L.L.P.

  



 


63





















 


Schedule 3.01(d)


Real Property


 


Tract 1:


 


Part of the SE1/4 of Sec. 16, T104N, R37W, Jackson County,
Minnesota, described as follows:


 


Beginning at an existing iron monument at the SW corner of the SE1/4 of
said Sec. 16; thence North 00°29’31” East, bearing based on Jackson County
Coordinate System, along the West line of the SE1/4 of said Sec. 16, a distance
of 1995.89 feet, to a point on the Southerly right of way line of the Union
Pacific Railroad; thence North 76°38’53” East, along the Southerly right of way
line of said Union Pacific Railroad, a distance of 2701.22 feet, to a point on
the East line of the SE1/4; thence South 00°18’29” West, along the East line of
said SE1/4 a distance of 1950.98 feet; thence South  89°57’40” West, parallel with the South line
of said SE1/4, a distance of 1005.15 feet; thence South 61°35’10” West a
distance of 172.03 feet; thence South 00°18’29” West, parallel with the East
line of said SE1/4, a distance of 585.18 feet, to a point on the South line of
said SE1/4; thence South 89°57’40” West, along the South line of SE1/4, a distance
of 1475.25 feet, to the point of beginning.


 


Tract 2:


 


Part of the SW1/4 of Sec. 16, T104N, R37W, Jackson County,
Minnesota, lying Southerly of the Southerly right of way line of the Union
Pacific Railroad, described as follows:


 


Beginning at an existing iron monument at the SE
corner of the SW1/4 of said Sec. 16; thence South 89°57’49” West, along the
South line of said SW1/4, a distance of 1031.09 feet; thence North 00°37’05”
East, parallel with the West line of said SW1/4, a distance of 275.02 feet;
thence South 89°57’49” West, parallel with the South line of said SW1/4, a
distance of 1600.10 feet, to a point on the West line of said SW1/4; thence
North 00°37’05” East, along the West line of said SW1/4, a distance of 593.98
feet; thence South 89°22’55” East a distance of 412.00 feet; thence North 00°37’05”
East, parallel with the West line of said SW1/4, a distance of 400.00 feet;
thence North 89°22’55” West a distance of 412.00 feet, to a point on the West
line of said SW1/4; thence North 00°37’05” East, along the West line of SW1/4,
a distance of 103.50 feet, to a point on the Southerly right of way line of the
Union Pacific Railroad, thence North 76°38’53” East, along the Southerly right
of way line of said Union Pacific Railroad, a distance of 2706.70 feet, to a
point on the East line of said SW1/4; thence South 00°29’31” West, along the
East line of said SW1/4, a distance of 1995.89 feet, to the point of beginning.


 


64





















 


Schedule 4.01(a)


Description of Certain Transactions Related to the Borrowers’ Stock


 


Up to 225,000 Class A Units (in aggregate) were
issued in August 2007, at the price of $.80 per unit, pursuant to
five-year options granted to the Borrower’s Board of Governors (including
estate of deceased former Governor).


 


3,750,000 Class A Units were issued, in
exchange for 3,750,000 Class B Units, pursuant to a subscription and
exchange agreement were entered into with Project Viking, LLC, an affiliate of
Roland Fagen, in May 2007.


 


65





















 


Schedule 4.01(f)


Description of Certain Threatened Actions, etc.


 


Permit Litigation (as defined in the Loan
Documents) and Borrower’s proceedings in front of MPCA relating to the Air
Permit.


 


The following proceeding is contemplated
before the Securities and Exchange Commission: 
Borrower intends to file a registration statement relating to the
registration of the Borrower’s Class A Units pursuant to Section 12(g)(1) of
the Securities Exchange Act of 1934 and regulations promulgated thereunder
relating thereto.


 


Outstanding licenses, permits and consents on
the schedule provided under Section 3.02(c).


 


Any claims between the Borrower and Fagen, Inc.,
under or in connection with the Design Build Contract (“Fagen Claims”).


 


Administrative Penalty Order issued by the
MPCA dated August 7, 2007, requiring the Borrower to undertake certain
specified corrective actions.


 


66





















 


Schedule 4.01(k)


Location of Inventory and Farm Products; Third Parties in Possession;
Crops


 


See Schedule 4.01(l) below (which
locations are incorporated herein by reference).


 


Borrower and Subsidiary maintain various
accounts with lenders/financial institutions that are subject to account
control agreements in favor of Lender.


 


Borrower and Subsidiary will lease certain real property from Union
Pacific Railroad Company with respect to the acquisition of the elevator
facilities located at (Lakefield Facility): 
105 Main Street, Lakefield, Minnesota 56150 and (Wilder Facility):  Highway 60, Wilder, Minnesota 56101, as
further described in the purchase agreement for the facilities between
Subsidiary and seller of such property.


 


Borrower and Subsidiary maintain petroleum, soybeans, corn and other
inventory at the Real Property, on the leased real property referenced above
and on the real property and improvements owned by Subsidiary.


 


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Schedule 4.01(l)


Office Locations; Fictitious Names; Etc.


 


Locations:


 


Lakefield Facility:  105 Main Street, Lakefield, Minnesota 56150


 


Wilder Facility:  Highway 60, Wilder, Minnesota 56101


 


Heron Lake: 91246 390th Avenue, PO
Box 198, Heron Lake, Minnesota 56137-0198 (Jackson County)


 


Jurisdiction of Organization:


 


Minnesota


 


Other Names:


 


Heron Lake BioEnergy, LLC, f.k.a. Generation
II Ethanol, LLC


 


Heron Lake BioEnergy (assumed name)


 


Lakefield Farmers Elevator


 


Income Tax Numbers:


 


Heron Lake BioEnergy - FEIN:  41-2002393; MN TID: 5537084


 


Lakefield Farmers Elevator, LLC – FEIN: 20-2990455;
MN TID: 7995842


 


MN State Charter Numbers:


 


Heron Lake BioEnergy, LLC: 22013-LLC


 


Lakefield Farmers Elevator, LLC:  1398208-2


 


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Schedule 4.01(p)


Intellectual Property


 


Tradenames:  Heron Lake BioEnergy;
Generation II Ethanol; Lakefield Farmers Elevator


 


Domain Names used in the ordinary course of business.


 


69





















 


Schedule 4.01(t)


Environmental Compliance


 


The environmental conditions identified on the
Limited Phase II Assessment for the Lakefield elevator facility located at 105
and 111 Main Street, Lakefield, Minnesota 56150, a copy of which is attached
hereto and incorporated herein, and any potential remediation measures
identified in said Assessment that may be required to be addressed and/or taken
prior to or in conjunction with acquisition of the Lakefield elevator facility
or pursuant to a post-closing undertaking agreement between the Borrower or its
subsidiaries and the seller of said property.


 


The Environmental Laws implicated by the
schedule provided under Section 3.02(c).


 


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Schedule 5.01(o)


Management


 


Our business
and affairs are managed by or under the direction of our Board of Governors.  Our Board of Governors may create additional
governorships and may fill those vacancies by the affirmative vote of a
majority of the members of the Board of Governors serving at the time of the
increase.  The members of this first
Board of Governors shall serve until our first annual meeting of members.


 


	
  Name

  	
   

  	
  Position

  	
   

  	
  Address

  
	
  Robert J. Ferguson

  	
   

  	
  Governor, Board
  President, CEO and General Manager

  	
   

  	
  P.O. Box 167 

  Heron Lake, MN 56137

  
	
  Michael
  S. Kunerth

  	
   

  	
  Governor,
  Board Treasurer

  	
   

  	
  34858
  150th Street 

  Brewster, MN 56119

  
	
  David
  J. Woestehoff

  	
   

  	
  Governor,
  Board Secretary

  	
   

  	
  15466
  West 270th Street 

  Belle Plaine, MN 56011

  
	
  David
  J. Bach

  	
   

  	
  Governor

  	
   

  	
  27817
  351st Avenue 

  Henderson, MN 56044

  
	
  Timothy O. Helgemoe

  	
   

  	
  Governor

  	
   

  	
  16087 Henry Drive 

  Utica, MN 55979

  
	
  Milton
  J. McKeown

  	
   

  	
  Governor

  	
   

  	
  P.O. Box
  201 

  Heron Lake, MN 56137

  
	
  Doug
  Schmitz

  	
   

  	
  Governor,
  Board Vice President

  	
   

  	
  P.O. Box
  175, Hwy 30 

  Currie, MN 56123

  
	
  Robert
  Wolf

  	
   

  	
  Governor

  	
   

  	
  748
  Kentucky Avenue 

  Adrian, MN 56110

  
	
  Brian
  Thome

  	
   

  	
  Governor
  (Fagen Appointee)

  	
   

  	
  501
  W. Highway 212 

  Granite Falls, MN 56241

  
	
  Dave
  Reinhart

  	
   

  	
  Governor
  (Fagen Appointee)

  	
   

  	
  501
  W. Highway 212 

  Granite Falls, MN 56241

  
	
  Jim
  Gerber

  	
   

  	
  Chief
  Financial Officer – Contractor

  	
   

  	
  1029
  Frontage Rd 

  Slayton, MN 56172

  



 


We expect the balance of our
employees will be hired and trained before we complete construction on the
plant.  We expect that training of
employees and on-site, start-up assistance will be part of our design-build
contract with our Fagen, Inc.


 


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Schedule 5.02(a)


Description of Certain Liens, Lease Obligations, etc.


 


See Section 5.02(a) and liens set
forth therein and contemplated thereby.


 


The Borrower leases a copy machine and is
subject to a lease agreement.


 


The Borrower intends to enter into a secured
loan arrangement with the Federated Rural Electric Ass’n/USDA to obtain funds
in the approximate principal amount of $600,000.00.  The Borrower’s obligations under the loan
arrangement may be secured by a security interest in certain assets of the Borrower
to be specified, provided any such security interest shall be subject to an
intercreditor agreement reasonably satisfactory to the Lender.


 


The Borrower intends to enter into a secured
loan arrangement with Interstate Power and Light Company and Alliant Energy
Company to obtain funds in the approximate principal amount of
$140,000.00.  The Borrower’s obligations
under the loan arrangement may be secured by a security interest in certain
assets of the Borrower to be specified; provided any such security interest
shall be subject to an intercreditor agreement reasonably satisfactory to the
Lender.


 


The Borrower leases 100 covered hopper cars
pursuant to that certain Railroad Car Lease Agreement between Trinity
Industries Leasing Company and Borrower dated June 26, 2006 and that
certain Rider One (1) dated November 1, 2006.


 


At October 31, 2006, the Borrower had
recorded a liability for derivative instruments related to corn futures
positions of approximately $916,000.00. 
The Borrower expects to incur and record liabilities for derivative
instruments relating to commodity futures positions in future periods.


 


The Borrower has entered into a note payable
in the original principal amount of $100,000.00 to Jackson County with interest
at 4.00%, forgivable upon job creation thresholds at specified wages as part of
the plant development within two years of plant completion, but no later than November 1,
2009.


 


Assessment payable as part of water treatment
agreement in the amount of $3,550,000.00 as of October 31, 2006.


 


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Schedule 5.02(k)


Transactions with Affiliates


 


Purchase of corn from any governor, officer or their
affiliate, provided said purchase is in accordance with Borrower’s Member
Control Agreement


 


The options and exchange agreement referenced in
Schedule 4.01(a)


 


Transactions between Borrower and its subsidiaries
pursuant to or in accordance with their respective member control agreements.


 


The Borrower has procured a software package from a
vendor in conjunction with an Affiliate in order to maximize economic
efficiencies associated with the procurement.


 


Transactions with Fagen, Inc. pursuant to the Design-Build
Agreement between Fagen, Inc. and Borrower dated September 28, 2005.


 


Transaction with Federated Electric to construct and operate a
sub-station.


 


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